High-speed rail and stock return comovement in China

Abstract

This study explores the impact of China’s high-speed rail network on reducing local bias and fostering capital market integration. Our research reveals that implementing high-speed rail in a city decreases the return comovement of its local stocks but increases its return comovement with the national stock market. Our results are robust and consistent across various model specifications. After examining the underlying economic mechanism, we find that the impact of high-speed rail on stock return comovement is stronger for small firms, non-state-owned enterprises (non-SOEs), firms with poor corporate governance, and firms’ headquarters in more segmented and less-developed regions. This effect did not change after controlling for other information-dissemination channels and regional economic development. Overall, geographical proximity contributes to information transfer and market efficiency.