Geographic Spillover of Dominant Firms' Shocks

63 Pages Posted: 26 Jan 2017 Last revised: 1 May 2019

See all articles by Sima Jannati

Sima Jannati

University of Missouri-Columbia

Date Written: April 29, 2019

Abstract

This paper shows that productivity shocks to the 100 largest U.S. firms (by revenue) contain systematic information. Specifically, shocks to the top-100 firms predict future shocks to geographically close firms. Intra-sector trade links are an important economic channel for spillover effects. However, these spillovers are not restricted to firms' trade links only. Knowledge externalities and state income tax payments are other economic channels through which shocks propagate. Market participants do not fully incorporate the information contained in shocks to the top-100 firms. Consequently, a trading strategy that exploits the slow diffusion of information generates an annual risk-adjusted return of 5.4%.

Keywords: Top 100 firms; Idiosyncratic shocks; systematic information; geographic spillover; information diffusion

JEL Classification: G02, G14, G24

Suggested Citation

Jannati, Sima, Geographic Spillover of Dominant Firms' Shocks (April 29, 2019). 8th Miami Behavioral Finance Conference 2017; 2019 Academic Research Colloquium for Financial Planning and Related Disciplines. Available at SSRN: https://ssrn.com/abstract=2905888 or http://dx.doi.org/10.2139/ssrn.2905888

Sima Jannati (Contact Author)

University of Missouri-Columbia ( email )

401 Cornell Hall
COLUMBIA, MO 65211
United States

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