Neighborhood effect on stock price comovement |
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| Institution: | 1. College of Business Administration, Bowling Green State University, Bowling Green, OH 43403, USA;2. Jiangxi University of Finance and Economics, Nanchang, Jiangxi Province, PR China;3. Sam and Irene Black School of Business, Pennsylvania State Univeristy at Erie, Erie, PA 16563, USA;1. King''s College, University of Western Ontario, Canada;2. Robert Day School of Economics and Finance, Claremont McKenna College, United States;3. A Gary Anderson Graduate School of Management, University of California, Riverside, United States;1. Department of Banking and Finance, National Chi Nan University, Taiwan, ROC;2. Department of Marketing Management, Takming University of Science and Technology, Taiwan, ROC;1. Bank of Canada, 234 Laurier Avenue West, Ottawa, ON, Canada K1A 0G9;2. Bank of Canada, Canada;3. Graduate School of Economics, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo 186-8601, Japan;1. Unité de recherche CREA,University of Luxembourg, Luxembourg;2. University of Sousse, Tunisie |
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| Abstract: | We investigate how the geographic distance between firms’ headquarters affects their stock price comovement. Our results show that a firm's stock return has stronger comovement with the returns of nearby firms than with those of distant firms. Being in the same state and/or in the same industry strengthens the return comovement, but does not substitute for the negative effect of geographic distance on price comovement. Firms of similar share price and size also show stronger return comovement, but these factors do not mitigate the negative distance impact. Consistent with investor home bias and neighborhood effect literature, our results suggest that investors’ preference for local stocks and their interactions lead to correlated trading in local stocks and therefore stronger local price comovement. |
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| Keywords: | Price comovement Local bias Asset category Geographic proximity Social interaction Investor behavior |
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