Title

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

Document Type

Journal article

Source Publication

Urban Studies: An International Journal of Research in Urban Studies

Publication Date

3-2-2016

Volume

Advance online publication

Publisher

Sage Publications Ltd.

Keywords

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

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.

DOI

10.1177/0042098016633101

Print ISSN

00420980

E-ISSN

1360063X

Publisher Statement

Copyright © 2016, © SAGE Publications. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Firth, M., Fu, S., & Shan, L. (2016). Do agglomeration economies affect the local comovement of stock returns? Evidence from China. Urban Studies. Advance online publication. doi: 10.1177/0042098016633101