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By Christopher W. Anderson and Eli Beracha


Recent studies report that U.S. firms headquartered near each other experience positive comovement in their stock returns, a finding suggestive of local biases in equity trading activity. We investigate the robustness of these findings and find that including additional pricing factors in models for monthly stock returns materially reduces the magnitude of the headquarters-city effect in stock returns. Additionally, we find that an implicit null hypothesis of zero local return comovement is inappropriate as there is positive comovement between a stock's return and returns on portfolios of stocks from nonheadquarters cities, on average. Nevertheless, results benchmarked against estimates based on resampling methods indicate a significant and robust headquarters-city effect in stock returns. (c) 2008 The Southern Finance Association and the Southwestern Finance Association.

DOI identifier: 10.1111/j.1475-6803.2008.00240.x
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