Local clientele: geography and comovement of stock returns
ISSN: 1940-5979
Article publication date: 12 July 2018
Issue publication date: 25 July 2018
Abstract
Purpose
Local investors have the ability to impact the stock prices and returns of local firms. However, the impact of news made by a firm on local investors and neighboring companies is absent from the academic literature. The purpose of this paper is to fill that void and examine how a local investor clientele affects the stock market reactions of firms located within the same geographic proximity as a news-generating firm.
Design/methodology/approach
After accounting for firm, industry, and geographic characteristics, this study examines how a firm’s dividend initiation announcement (positive news) influences stock prices of seemingly unrelated firms within the same metropolitan statistical area (MSA).
Findings
Dividend-paying firms located in areas with a higher percentage of dividend clientele experience a positive comovement reaction when a seemingly unrelated firm within the same MSA announces a dividend initiation. The positive reactions are specifically for dividend-paying firms, while non-dividend payers exhibit no significant response. These results are robust to numerous regression methods and alternative explanations.
Practical implications
These findings are consistent with the positive-investor-attention hypothesis, suggesting positive spillover effects from news announcements for other local firms in the presence of individual investor clientele.
Originality/value
This is the first study to link how news generated by one firm can influence other geographically local firms, providing evidence on the impact of individual investor clientele on stock returns of local non-news firms.
Keywords
Acknowledgements
The authors thank Werner DeBondt, Louis Ederington, Lorenzo Garlappi, Chitru Fernando, Zoran Ivkovich, Alok Kumar, Sonya Lim, Hamed Mahmudi, William Megginson, Christo Pirinsky, Clemens Sialm, Qinghai Wang, Pradeep Yadav, Duane Stock, and workshop participants at the Behavioural Finance Working Group Conference, Financial Management Association Annual Meeting, and University of Oklahoma for helpful comments and suggestions. The authors are responsible for any remaining errors.
Citation
Uysal, V. and Hoelscher, S. (2018), "Local clientele: geography and comovement of stock returns", Review of Behavioral Finance, Vol. 10 No. 3, pp. 231-251. https://doi.org/10.1108/RBF-07-2017-0071
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited