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Robustness Of The Headquarters-City Effect On Stock Returns

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  • Christopher W. Anderson
  • Eli Beracha

Abstract

Recent studies report that U.S. firms headquartered near each other experience positive comovement in their stock returns, a finding suggestive of local biases in equity trading activity. We investigate the robustness of these findings and find that including additional pricing factors in models for monthly stock returns materially reduces the magnitude of the headquarters-city effect in stock returns. Additionally, we find that an implicit null hypothesis of zero local return comovement is inappropriate as there is positive comovement between a stock's return and returns on portfolios of stocks from nonheadquarters cities, on average. Nevertheless, results benchmarked against estimates based on resampling methods indicate a significant and robust headquarters-city effect in stock returns. (c) 2008 The Southern Finance Association and the Southwestern Finance Association.

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  • Christopher W. Anderson & Eli Beracha, 2008. "Robustness Of The Headquarters-City Effect On Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(3), pages 271-300.
  • Handle: RePEc:bla:jfnres:v:31:y:2008:i:3:p:271-300
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    References listed on IDEAS

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    Cited by:

    1. Fu, Shihe & Shan, Liwei, 2011. "Agglomeration Economies and Local Comovement of Stock Returns," MPRA Paper 31887, University Library of Munich, Germany.
    2. Christopher Anderson & Eli Beracha, 2012. "Frothy Housing Markets and Local Stock-Price Movements," The Journal of Real Estate Finance and Economics, Springer, pages 326-346.
    3. Li, Mingsheng & Zhao, Xin, 2016. "Neighborhood effect on stock price comovement," The North American Journal of Economics and Finance, Elsevier, pages 1-22.

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