Geography and distance effect on financial dynamics in the Chinese stock market

TL;DR

This paper examines how geographical location and distance influence financial dynamics in the Chinese stock markets of Shanghai and Shenzhen, revealing location impacts and distance-related correlation patterns.

Contribution

It provides new insights into the geographical and distance effects on stock correlations in Chinese markets, including the identification of crossover behavior in distance distribution.

Findings

Stock location affects financial dynamics, except during crises.

Short-distance stocks are more likely than long-distance stocks.

Correlation weakly decays with distance in Shanghai, but remains stable in Shenzhen.

Abstract

Geography effect is investigated for the Chinese stock market including the Shanghai and Shenzhen stock markets, based on the daily data of individual stocks. The Shanghai city and the Guangdong province can be identified in the stock geographical sector. By investigating a geographical correlation on a geographical parameter, the stock location is found to have an impact on the financial dynamics, except for the financial crisis time of the Shenzhen market. Stock distance effect is further studied, with a crossover behavior observed for the stock distance distribution. The probability of the short distance is much greater than that of the long distance. The average stock correlation is found to weakly decay with the stock distance for the Shanghai stock market, but stays nearly stable for different stock distance for the Shenzhen stock market.