Regional Economic Activity and Stock Returns

80 Pages Posted: 2 Nov 2013 Last revised: 16 Feb 2018

See all articles by Esad Smajlbegovic

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: February 13, 2018


This paper studies the diffusion of regional macroeconomic information into stock prices. I identify all U.S. states that are economically relevant for a company through textual analysis of annual reports and find that economic activity forecasts of company-relevant regions positively predict cross-sectional stock returns. Information arising from all relevant states is more important than that which relates to the headquarter state alone. These forecasts also predict firms' performance and earnings surprises, suggesting that the return predictability stems from future cashflows that are gradually reflected in prices. Finally, regional information takes longer to be incorporated into prices among difficult-to-arbitrage stocks.

Keywords: Regional Economic Activity, Stock Returns, Cashflows, Mispricing, Limits to Arbitrage

JEL Classification: G12, G14, M41, R11

Suggested Citation

Smajlbegovic, Esad, Regional Economic Activity and Stock Returns (February 13, 2018). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: or

Esad Smajlbegovic (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA


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