Geographic Momentum

50 Pages Posted: 17 May 2016 Last revised: 30 Sep 2017

Christopher A. Parsons

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

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: June 13, 2016

Abstract

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

Parsons, Christopher A. and Sabbatucci, Riccardo and Titman, Sheridan, Geographic Momentum (June 13, 2016). Available at SSRN: https://ssrn.com/abstract=2780139 or http://dx.doi.org/10.2139/ssrn.2780139

Christopher A. Parsons

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

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
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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