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Regional Economic Activity and Stock Returns

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  • Smajlbegovic, Esad

Abstract

This paper studies the diffusion of regional macroeconomic information into stock prices. I identify all U.S. states that are economically relevant for a company through textual analysis of annual reports and find that economic activity forecasts of company-relevant regions positively predict cross-sectional stock returns. Information arising from all relevant states is more important than that relating to the headquarter state alone. These forecasts also predict firms’ performance and earnings surprises, suggesting that the return predictability stems from future cash flows that are gradually reflected in prices. Finally, regional information takes longer to be incorporated into prices among difficult-to-arbitrage stocks.

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  • Smajlbegovic, Esad, 2019. "Regional Economic Activity and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(3), pages 1051-1082, June.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:03:p:1051-1082_00
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    6. Chongyu Wang & Jeffrey P. Cohen & John L. Glascock, 2019. "Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. REITs," International Real Estate Review, Global Social Science Institute, vol. 22(4), pages 535-570.
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    9. Lartey, Theophilus & Danso, Albert & Owusu-Agyei, Samuel, 2020. "CEOs' market sentiment and corporate innovation: The role of financial uncertainty, competition and capital intensity," International Review of Financial Analysis, Elsevier, vol. 72(C).
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    12. Yang, Jinyu & Xia, Guoen & Dong, Dayong, 2024. "Placebo in the random walk of stock price: Momentum effect of corporate site visits," Research in International Business and Finance, Elsevier, vol. 70(PB).
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    15. Rui Du & Junfu Zhang, 2022. "Super bowl participation and the local economy: Evidence from the stock market," Growth and Change, Wiley Blackwell, vol. 53(4), pages 1513-1545, December.
    16. Thanh Nguyen & Arsenio Staer & Jing Yang, 2024. "Productivity Shocks of Dominant Companies and Local Housing Markets," International Real Estate Review, Global Social Science Institute, vol. 27(2), pages 203-247.
    17. Dissanayake, Ruchith, 2021. "Geographic distribution of firms and expected stock returns," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
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    19. Wang, Wenlong & Huang, Yuqin & Watson, John & Yang, Bowen, 2023. "The intra-regional spillover effects of bond defaults: Evidence from the Chinese corporate debt market," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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