66 Pages Posted: 17 May 2016 Last revised: 30 Sep 2017
Date Written: June 13, 2016
We document geographic momentum: a positive lead-lag stock return relation between neighboring firms operating in different sectors. Geographic momentum yields risk-adjusted returns of 5-6% per year, about half that observed for industry momentum. However, while industry momentum is strongest among thinly traded, small firms, and/or those with scant analyst following, geographic momentum is unrelated to these proxies for information processing. We propose an explanation linking this to the structure of the investment analyst business, which is organized by sector, rather than by geographic region.
Keywords: Local Predictability, Area Momentum, Lead-Lag Effects, Analyst Coverage, Limited Attention
JEL Classification: G10, G11, G12, G14, G24
Suggested Citation: Suggested Citation