Geographic Heterogeneity, Local Sentiment, and Market Anomalies

50 Pages Posted: 20 Nov 2018 Last revised: 29 Apr 2022

See all articles by Mehrshad Motahari

Mehrshad Motahari

Bayes Business School (formerly Cass); University of Cambridge - Judge Business School

Date Written: April 29, 2022

Abstract

This study shows that market anomalies are stronger for stocks of firms headquartered in states with a history of better anomaly performance. Using a combined measure of mispricing based on 11 prominent anomaly strategies, I find that the level of mispricing for a firm's geographic peers predicts how mispriced the firm's stock will be in the future. I find similar results when I consider industry peers instead, but neither group absorbs the effect of the other. States in which mispricing is more prevalent are those experiencing relatively higher levels of local investor sentiment and better local macroeconomic conditions.

Keywords: Anomalies, Local predictability, Mispricing, Sentiment, Peer effects

JEL Classification: G12, G14

Suggested Citation

Motahari, Mehrshad, Geographic Heterogeneity, Local Sentiment, and Market Anomalies (April 29, 2022). Available at SSRN: https://ssrn.com/abstract=3277128 or http://dx.doi.org/10.2139/ssrn.3277128

Mehrshad Motahari (Contact Author)

Bayes Business School (formerly Cass) ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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