EXPLORING THE EFFECTS OF THE GEOGRAPHICAL LOCATION OF THE HEADQUARTERS OF S&P 500 AND RUSSELL 2000 COMPANIES ON THEIR STOCK MARKET PERFORMANCE

Abstract

This paper will contribute to the field of studying the relationship between geography and stock price performance. Previous literature has touched on this topic by studying investors’ bias towards holding stocks of local companies. This paper tests the hypothesis of how the geographical location of the headquarters of a company itself affects its stock market performance. The experiment reveals that the investment income of the individuals, which serves as the proxy for financial sophistication, located in the same metropolitan statistical area as the companies in the sample have a significant effect on stock price performance. The more financially sophisticated the individuals in an MSA are, the higher returns a company in the MSA will experience. The experiment tests for other geographical characteristics and company characteristics that may affect a company’s stock price performance but appear to have no significant affect.