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

Bibliographic Data

ID10860244
AuthorsMichael Firth (0000-0003-1626-3123, Lingnan University, Hong Kong), Shihe Fu (0000-0003-3978-0000, Southwestern University of Finance and Economics, corresponding author), Liwei Shan (0000-0003-2106-8162, Southwestern University of Finance and Economics)
Year2017
Volume54
Issue5
Pages1142-1161
Publication date2017-04-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueUrban Studies (JOURNAL)
Journal identifiersISSN: 0042-0980 • E-ISSN: 1360-063X
PublisherSAGE Publications (PUBLISHER • US)
DOI10.1177/0042098016633101
OpenAlexW2291534451
LanguageEN
Citations received2
References cited43

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

China · Economics · Economies of agglomeration · Financial economics · Geography · Microeconomics · Monetary economics · Stock (firearms · Corporate Finance and Governance · Financial Markets and Investment Strategies · Housing Market and Economics

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