Know Thy Neighbor: Industry Clusters, Information Spillovers and Market Efficiency

52 Pages Posted: 18 Mar 2010 Last revised: 20 Jan 2019

See all articles by Joseph Engelberg

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Arzu Ozoguz

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Sean Wang

Southern Methodist University (SMU) - Accounting Department

Date Written: August 16, 2013

Abstract

Firms in industry clusters have market prices that are more efficient than firms outside clusters. To establish causality, we analyze exogenous firm relocations and find that firms that relocate into industry clusters have higher levels of industry-information in their prices. We argue that geographical proximity allows for information spillovers, reducing marginal cost to information producers. Our evidence supports this view: analysts are more likely to cover stocks inside industry clusters and that, when institutional investors have a large position in one stock in the industry cluster, they are more likely to hold other stocks in the same industry cluster.

Keywords: Information, industry cluster, market efficiency

JEL Classification: G14

Suggested Citation

Engelberg, Joseph and Ozoguz, Arzu and Wang, Sean, Know Thy Neighbor: Industry Clusters, Information Spillovers and Market Efficiency (August 16, 2013). Available at SSRN: https://ssrn.com/abstract=1571793 or http://dx.doi.org/10.2139/ssrn.1571793

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Arzu Ozoguz (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Sean Wang

Southern Methodist University (SMU) - Accounting Department ( email )

United States
2147682858 (Phone)

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