Geographic Links and Predictable Returns

55 Pages Posted: 29 Jun 2020 Last revised: 13 Jan 2021

See all articles by Zuben JIN

Zuben JIN

Singapore Management University - Lee Kong Chian School of Business

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business

Date Written: June 3, 2020

Abstract

Using detailed information on establishments owned by U.S. public firms, we construct a novel measure of geographic linkage between firms. We show that the returns of geography-linked firms strongly predict focal firm returns and fundamentals. A long-short strategy based on this effect yields monthly value-weighted alpha of approximately 60 basis points. This effect is distinct from other cross-firm return predictability and is not easily attributable to risk-based explanations. Sell-side analysts similarly underreact, as their forecast revisions of geography-linked firms predict their future revisions of focal firms. Our results are broadly consistent with sluggish price adjustment to dispersed geographic information.

Keywords: Geography, Limited attention, Cross-asset momentum, Market efficiency

JEL Classification: G10, G12, G14, G24

Suggested Citation

JIN, Zuben and Li, Frank Weikai, Geographic Links and Predictable Returns (June 3, 2020). Available at SSRN: https://ssrn.com/abstract=3617417 or http://dx.doi.org/10.2139/ssrn.3617417

Zuben JIN

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Frank Weikai Li (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
209
Abstract Views
989
rank
167,853
PlumX Metrics