Firms located in dense urban areas experience higher productivity due to the flow of ideas and innovation in these areas. Through this productivity channel, the urban density characteristics of the areas in which firms are located affect the stock returns. We use high-resolution satellite images from Google Earth to develop an exogenous measure of potential density increases (PDIs) for the 95 most populated metropolitan statistical areas (MSAs) in the US. This measure represents the proportion of the total area within a one-hour drive from the center of the MSA that could rapidly increase its density. We find that firms located in areas with high PDIs present lower stock returns. On average, a 10% higher PDI for an MSA results in 0.33% lower excess stock returns for firms located in that MSA.

Productivity, stock returns, urban density, development potential
2019 Latin American and the Caribbean Economic Association (LACEA) Meeting, 34th Congress of the European Economic Association (EEA), World Finance Conference, American Real Estate and Urban Economics Association (AREUEA), 12th World Conference of the Spatial Econometrics Association (SEA), 21st Uddevalla Symposium 2018, European Regional Science Association, 58th ERSA Congress, 2018 PhD Conference on Real Estate and Housing, Conference on Frontiers of Factor Investing, Southwestern Finance Association (SWFA), Paris Financial Management Conference (PFMC), EFMD Solvay Job Fair, IESE Research Workshop, IESE Brown-bag Seminar, North American Regional Science (NARSC)
Incae Business School

Memarian, M, & Vergara-Alert, C. (2019). Urban Density and Firms’ Stock Returns. Under review of the Real Estate Economics Journal. Presented at the 12th World Conference of the Spatial Econometrics Association (SEA), 21st Uddevalla Symposium 2018, European Regional Science Association, 58th ERSA Congress, 2018 PhD Conference on Real Estate and Housing, Conference on Frontiers of Factor Investing, Southwestern Finance Association (SWFA), Paris Financial Management Conference (PFMC), EFMD Solvay Job Fair, IESE Research Workshop, IESE Brown-bag Seminar, North American Regional Science (NARSC).