Local clientele: geography and comovement of stock returns


Purpose: Local investors have the ability to impact the stock prices and returns of local firms. However, the impact of news made by a firm on local investors and neighboring companies is absent from the academic literature. The purpose of this paper is to fill that void and examine how a local investor clientele affects the stock market reactions of firms located within the same geographic proximity as a news-generating firm.

Design/methodology/approach: After accounting for firm, industry, and geographic characteristics, this study examines how a firm's dividend initiation announcement (positive news) influences stock prices of seemingly unrelated firms within the same metropolitan statistical area (MSA).

Findings: Dividend-paying firms located in areas with a higher percentage of dividend clientele experience a positive comovement reaction when a seemingly unrelated firm within the same MSA announces a dividend initiation. The positive reactions are specifically for dividend-paying firms, while non-dividend payers exhibit no significant response. These results are robust to numerous regression methods and alternative explanations.

Practical implications: These findings are consistent with the positive-investor-attention hypothesis, suggesting positive spillover effects from news announcements for other local firms in the presence of individual investor clientele.

Originality/value: This is the first study to link how news generated by one firm can influence other geographically local firms, providing evidence on the impact of individual investor clientele on stock returns of local non-news firms.

Document Type





behavioural finance, demographics, geography, comovement, dividend clientele

Publication Date


Journal Title

Review of Behavioral Finance