Market Segmentation, Keeping up with the Jones and Local Comovement of Firm Investment
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| Title | Market Segmentation, Keeping up with the Jones and Local Comovement of Firm Investment
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| Author | Wang Zheng and Hu Conghui |
| Organization | Peking University; University of International Business and Economics |
| Email | wangzheng1026@pku.edu.cn；conghui_hu@163.com |
| Key Words | Market Segmentation; Keeping Up with the Jones Effect of Investment; Corporate Investment; Local Comovement; Herding Effect |
| Abstract | Besides “wave phenomena” at the industry level, there can also be local comovement of firm investment. Using data of China’s listed firms from 1998 to 2014, this paper shows that a firm’s capital expenditure is positively related to the average capital expenditure of listed firms in its province. Furthermore, local comovement of firm investment is stronger for provinces where the local market and the markets of neighboring provinces are more segmented, and for firms which are more likely to keep up with the Jones when making investment decisions. This paper shows new mechanisms of local comovement of firm investment in the context of China’s economy. The implication is that local comovement of firm investment is inefficient to some extent, and that a unified national market with less political interference may mean higher investment efficiency. |
| Serial Number | WP1138 |
| Time | 2016-12-06 |
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