Does Location Effect Matter For Stock Returns?

The research on the impact factors of asset pricing at home and abroad can be described as historical sources.From the initial CAPM model,it has been demonstrated that the market factors and its systemic risk will have a significant impact on the expected return of stocks.After reading the relevant literatures,this paper finds that the current research on stock pricing factors mainly focuses on the macro level,industry level,company financial surplus,dividends,innovation ability and other fundamentals,as well as stock historical transaction price,market value,price-earnings ratio,etc.There is less literature on the pricing of stocks as a starting point for registration.From the history of China's economic development,the government's visible hand intervention and allocation of resources has existed many years and numerous specific policies and economic activities are often formulated and implemented by provincial governments,thus forming economic linkages between different provinces.Longer-term rigid constraints,in turn,have an impact on the company's business activities.Based on this reason,we divide the annual stock returns of companies which IPOs in growth enterprise market into a lot of groups according to the provincial administrative units and the comprehensive economic zone in 2011 to 2018.The return of different geographical combinations shows significant differences.For example,The average stock return of Shanghai,Hunan,Shenzhen is much higher than that of Shanxi,Jilin,Sichuan.We make this bold assumption that the location effect matters for the stock return,based on the empirical conclusion of Pirinsky and Wang(2006),Li Jinliang,Shen Hongbo and Jin Qin(2009).In addition,when stock price in a province roses sharply short time,investors will be addicted and their trading behavior will be changed,but this investment strategy based on this phenomenon are unsustainable and irrational.It is difficult to obtain excess returns in the long term,so this is not the topic of this paper.We mainly attempt to make the long-term relationship between location effect and stock returns a research,in order to provide a theoretical reference for investors.The empirical part of this paper mainly focuses on the three dimensions,including market,industry and location,and we take the historical closing price on the growth enterprise market as the research sample.At the same time,we found that there are obvious geographical concentration and superposition of industry clusters on the growth enterprise market.Therefore,this paper firstly demonstrates the impact of industry effect on stock returns,concluding that market factors and industry factors are positive for stock returns.The interpretation of the rate is significant and the stock prices of firm in the same industry appears strong co-movement.According to this conclusion,this paper adds location factors on the stock market and industry two-factor asset-pricing model.The empirical results show that the~2 of the asset pricing model is significantly rose,and the conclusion that the market and industry factors matters for stock return is not changed.At the same time,it is found that the location factor has a significant impact on the stock return and the stock return of firm in the same province also appears co-movement,and regardless of the market cycle(the bull or bear market),the above conclusions are always true.It shows that there are general local phenomena and industry phenomena in growth enterprise market,but the local co-movement of stock return is stronger than the industry in a word.In addition,the stock price co-movement of firms in the same region in different provinces still has strength and weakness,and the stronger the stock price synchronicity in the same region,the lower the average returns of the regional portfolio.In a word,it is feasible to focus on the weaker local co-movement for general investors,especially in the bear market period.