Geographic Proximity and Price Efficiency: Evidence from High-speed Railway Connections Between Firms and Financial Centers

55 Pages Posted: 17 Jul 2020 Last revised: 12 May 2021

See all articles by Hao Gao

Hao Gao

Tsinghua University - PBC School of Finance

Yuanyu Qu

University of International Business and Economics (UIBE) - School of Banking and Finance

Tao Shen

Tsinghua University

Date Written: May 11, 2021

Abstract

We study how geographic proximity to financial centers affects price efficiency. Using high-speed railway connections between firm cities and their nearest financial centers in China as exogenous shocks, we find stocks of connected firms are more efficiently priced than those of firms that are not connected. Consistent with our hypothesis, ease of travel has a stronger effect on firms that are closer to financial centers, smaller, have less institutional ownership and financial analyst coverage, and are not on the short sales list. Our paper highlights the importance of the geographic proximity of firms to financial centers on financial market efficiency.

Keywords: Price efficiency; Geographic proximity; High-speed railway; Information acquisitions

JEL Classification: G10; G14

Suggested Citation

Gao, Hao and Qu, Yuanyu and Shen, Tao, Geographic Proximity and Price Efficiency: Evidence from High-speed Railway Connections Between Firms and Financial Centers (May 11, 2021). Available at SSRN: https://ssrn.com/abstract=3635159 or http://dx.doi.org/10.2139/ssrn.3635159

Hao Gao

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Yuanyu Qu (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Tao Shen

Tsinghua University ( email )

Department of Finance
School of Economics and Management
China

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