Geography Of Stock Returns: Evidence From An Emerging Market

Abstract

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">Does location of corporate headquarters matter for stock returns? Do investors prefer to invest in firms located near them? This study aims to answer these questions by using a large dataset of stock returns for firms listed at the Bombay Stock Exchange during the period between 2003 and 2007. Our results show that stock returns of firms show a strong degree of co-movement with stock returns of other firms located in the same city as them. Interestingly, we also show that this degree of co-movement goes down with firms located in the neighboring cities. We also show that stock returns of firms exhibit the least degree of co-movement with firms that are located farther from the neighboring cities. Furthermore, our results show that this degree of co-movement in stock returns is increasing over the period of time. Our results are consistent with prior literature that considers location as an important determinant of stock returns.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>