High-Speed Rail and Stock Return Comovement in China

This paper explores the impact of China’s high-speed rail network on reducing local bias and fostering capital market integration. Our research reveals that the implementation of high-speed rail in a city decreases the return comovement of its local stocks, but increases its return comovement with the national stock market. Our results are robust and consistent for various model specifications. After examining the underlying economic mechanism, we find that the impact of high-speed rail on stock return comovement is stronger for small firms, non-SOEs (non-state-owned enterprises), firms with poor corporate governance, firms’ headquarters located in more segmented and less developed regions. This effect does not alter after controlling for other information dissemination channels or regional economic development. Overall, geographical proximity contributes to the information exchange and market efficiency