Geographic Lead-Lag Effects

66 Pages Posted: 17 May 2016 Last revised: 22 Sep 2018

See all articles by Christopher A. Parsons

Christopher A. Parsons

Foster School of Business, University of Washington

Riccardo Sabbatucci

Stockholm School of Economics; Swedish House of Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: September 11, 2018

Abstract

We document lead-lag effects in stock returns between co-headquartered firms operating in different sectors. Such geographic lead-lags yield risk-adjusted returns of 5-6% per year, about half that observed for industry lead-lag effects. However, while industry lead-lag effects are strongest among small, thinly traded stocks with low analyst coverage, geographic lead-lags are unrelated to these proxies for investor scrutiny. We propose an explanation linking this to the structure of the investment analyst business, which is organized by sector, rather than by geographic region. In particular, our findings suggest that in lead-lag relationships, analysts common to both the leading and lagging firm are important, irrespective of the number of analysts covering each individually.

Keywords: Return predictability, geographic momentum, industry momentum, lead-lag effects, analyst coverage, limited attention

JEL Classification: G10, G11, G12, G14, G24

Suggested Citation

Parsons, Christopher A. and Sabbatucci, Riccardo and Titman, Sheridan, Geographic Lead-Lag Effects (September 11, 2018). Available at SSRN: https://ssrn.com/abstract=2780139 or http://dx.doi.org/10.2139/ssrn.2780139

Christopher A. Parsons

Foster School of Business, University of Washington ( email )

PACCAR HALL
4273 E Stevens Way NE
Seattle, WA 98195
United States

Riccardo Sabbatucci (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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