Location-specific stock market indices: an exploration

This article develops an alternative location-specific stock market index driven by investors' 'attachment' towards investment at a specific location. We evaluate the performance of hypothetical stock market indices that track companies based on their state of registration, taking the US stock market as our case. Using annual data since 1980 we present raw, risk-adjusted and value-weighted state portfolios' returns to study the extent to which stock market performance varies by state-level demographics and economic factors. A dynamic panel data estimation - with and without spatial spillover effects - is employed to establish a strong association between stock price performance and the state-level (or geography-weighted) factors. We find that spatial effects are strong and that the 'spatial attachment' of companies in interaction with the various location-specific variables imparts an overarching influence on stock-price performance. Comparison of model performances further supports our claims.