Based on China’s stock market, this study investigates how firms’ geographic distance from a financial center affects the sensitivity of stock prices to investor sentiment. I find that firms located closer to a financial center are more affected by investor sentiment than firms located far from a financial center. This distance effect holds for different geographic cutting boundaries and after excluding firms located in financial centers. Besides, using China’s High Speed Railway (HSR) as an exogenous shock, I find that HSR connection significantly decreases the effect of geographic distance on the sentiment-driven stock price relationship. In addition, firms with shorter travel times to financial centers are more affected by investor sentiment than firms with longer travel times. Moreover, firms located in provinces with a high stock market participation rate are more affected by investor sentiment than other firms. And Analysts increase the frequency of favorable recommendations for firms that are located closer to financial centers when investor sentiment is high. Furthermore, firms located closer to a financial center do not have higher institutional ownership than other firms. Last but not least, firms located in more economically developed provinces are not more affected by investor sentiment than firms located in less developed provinces. Overall, my findings highlight the importance of geographic distance in explaining the effects of investor sentiment on stock prices.
|Date of Award||2017|
- Department of Finance and Insurance
|Supervisor||Jin GAO (Supervisor)|