Neighborhood Awareness and Stock Return Synchronicity: Evidence from Satellite Nighttime Light Data

Abstract

This paper examines the impact on stock return synchronicity of information provided by people who neighbor firms. Neighboring people have inherent advantages in acquiring and interpreting information. We employed novel satellite nighttime light data as a proxy for information held by neighboring people. Our analyses confirmed that brighter nighttime light was related to greater and better-quality information production. Using a sample of 18,963 firm–year observations over the 2000–2013 period, we found that information from nearby people facilitated the incorporation of firm-specific information into stock prices, resulting in lower stock return synchronicity. The results were robust when using the slope as an instrumental variable and were supported by various sensitivity checks. The effect of nighttime light intensity was more pronounced for firms operating across multiple geographic regions or diverse industries, those situated near more parks and shopping malls, and those with fewer institutional investors and less media coverage.