Industry Structure and Stock Price Synchronicity
Hao Cheng (),
Kian Guan Lim () and
Long Wang ()
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Hao Cheng: Singapore Management University
Kian Guan Lim: Lee Kong Chian School of Business, Singapore Management University
International Real Estate Review, 2021, vol. 24, issue 4, 501-548
This paper provides a non-information-based explanation to the stock price synchronicity for firms sorted by country, size-decile and industry sector. Using a panel of listed firms in 40 countries that span over 23 years, we find that the governance and the market size effects are highly collinear in predicting stock price synchronicity at the decile and the industry sector levels. Moreover, the effect is larger in the real estate industry than in the non-real estate industry. The channel of information extraction by large firms and firms in markets with weak governance of property rights cannot be easily disentangled. This study explores the industry structure as an alternative explanation for the stock price synchronicity. Our proposed sales growth co-movement indices of firms exhibit highly significant and positive effects in driving price synchronicity after controlling for observed and unobserved crosssectional and temporal variations. Firms in a market with highly interconnected business networks have higher stock price synchronicity (R2). The results are robust and consistent, which do not hinge on whether a market is informational efficient.
Keywords: Price Synchronicity; Market Capitalization; Property Rights Protection; Industry Structure; Information Hypothesis; Sales Growth Co-movements (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
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