Industry Structure and Stock Price Synchronicity

45 Pages Posted: 15 Apr 2014 Last revised: 18 Sep 2019

See all articles by Hao Cheng

Hao Cheng

Independent

Kian-Guan Lim

Singapore Management University - Lee Kong Chian School of Business

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Long Wang

Date Written: January 12, 2018

Abstract

This paper provides a non-information-based explanation to the stock price synchronicity for firms sorted by the country, size-decile and industry sector. Using a panel of listed firms in 40 countries spanning over 23 years, we find that the governance and the market size effects are highly collinear in predicting stock price synchronicity at the decile and the industry sector levels. The channel of information extraction by large firms and firms in markets with weak governance of property rights cannot be easily disentangled. This study explores the industry structure as an alternative explanation for the stock price synchronicity. Our proposed firms’ sale growth co-movements indices exhibit highly significant and positive effects in driving price synchronicity after controlling for observed and unobserved cross-sectional and temporal variations. Firms in a market with highly inter-connected business networks have higher stock price synchronicity (R2). The results are robust and consistent, which do not hinge on whether a market is informational efficient or not.

Keywords: Price Synchronicity, Market Capitalization, Property Rights Protection, Industry Structures, Information Hypothesis, Market-Wide Risk

JEL Classification: G14, G15

Suggested Citation

Cheng, Hao and Lim, Kian-Guan and Sing, Tien Foo and Wang, Long, Industry Structure and Stock Price Synchronicity (January 12, 2018). Available at SSRN: https://ssrn.com/abstract=2425042 or http://dx.doi.org/10.2139/ssrn.2425042

Hao Cheng

Independent

No Address Available

Kian-Guan Lim

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road #05-01
Singapore, 178899
Singapore

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

No contact information is available for Long Wang

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