Game in Another Town: Geography of Investor Attention and Stock Valuation
51 Pages Posted: 5 Jan 2021
Date Written: November 18, 2020
Investors have preferences for and pay attention to local stocks, as well as stocks of companies in connected cities. Using online stock watchlist data in China, we identify the investor geographic makeup of a stock by exploiting the aggregate pattern in the geographic connections of watched stocks and examine its implications for stock valuations measured by the market to book equity. We find that cross-city attention increases stock valuations in the attended city and decreases those in the unattended. The aggregate stock demand to supply in attention-connected cities also increases local stocks’ valuation. The effects of attention-connected cities are stronger for small firms, extend to stock returns, and induce excess return comovement. The findings suggest that attention-revealed city connectivity is an important factor in asset pricing.
Keywords: Attention geography, stock watchlist, local bias, city connectivity, market valuation
JEL Classification: G11, G12, G15, G40, G41
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