Do agglomeration economies affect the local comovement of stock returns? Evidence from China

Michael Arthur FIRTH, Shihe FU, Liwei SHAN

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

2 Citations (Scopus)

Abstract

Prior studies in finance have examined the comovement of stock returns of firms headquartered in the same location. One interpretation of the results is that local investors have a ‘local bias’ due to an information advantage on local firms. We propose that localised agglomeration economies affect the fundamentals of local firms, resulting in the local comovement of stock returns. Using data for China A-share listed firms from 1997 to 2007, we find evidence of the comovement of stock returns of Chinese firms headquartered in the same city. We find inconsistent evidence for the local bias theory. The comovement of the stock returns of firms headquartered in the same city is stronger when the agglomeration economies in the city are stronger, suggesting that localised agglomeration economies provide an alternative explanation of the comovement of stock returns.
Original languageEnglish
Pages (from-to)1142-1161
JournalUrban Studies: An International Journal of Research in Urban Studies
Volume54
Issue number5
Early online date2 Mar 2016
DOIs
Publication statusPublished - 2017

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agglomeration
agglomeration area
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evidence
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finance
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interpretation
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Keywords

  • agglomeration economies
  • firm value
  • headquarters
  • local bias
  • stock returns

Cite this

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abstract = "Prior studies in finance have examined the comovement of stock returns of firms headquartered in the same location. One interpretation of the results is that local investors have a ‘local bias’ due to an information advantage on local firms. We propose that localised agglomeration economies affect the fundamentals of local firms, resulting in the local comovement of stock returns. Using data for China A-share listed firms from 1997 to 2007, we find evidence of the comovement of stock returns of Chinese firms headquartered in the same city. We find inconsistent evidence for the local bias theory. The comovement of the stock returns of firms headquartered in the same city is stronger when the agglomeration economies in the city are stronger, suggesting that localised agglomeration economies provide an alternative explanation of the comovement of stock returns.",
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Do agglomeration economies affect the local comovement of stock returns? Evidence from China. / FIRTH, Michael Arthur; FU, Shihe; SHAN, Liwei.

In: Urban Studies: An International Journal of Research in Urban Studies, Vol. 54, No. 5, 2017, p. 1142-1161.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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