The Study of Stock Returns Local Co-movement:Evidence from Chinese Stock Market
This paper found strong degree of stock returns local co-movement among stocks in Chinese stock market.The local co-movement is distinct from market co-movement and industry co-movement.The local co-movement of stock returns is not explained by corporate fundamentals.The regression results do not show significant local co-movement of accounting earnings.A reasonable explanation is the similar trading pattern of local investors deriving from region segmen-tation.Stocks of companies which are small size,high leverage,high price-to-book ratio,low ROA,low earnings growth rate,high proportion of tradable shares,and low proportion of fund ownership show stronger degree of local co-movement,while stocks of companies headquartered in regions with more firms and higher Herfindahl index also demonstrate stronger degree of local co-movement.The results reveal that stocks of more visible companies exhibit weaker returns local co-movement.Implications for investors,monitors and governments are discussed in accordance with the study findings.
Local Co-movementStock ReturnRegion SegmentationInvestor Behavior
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