We examine stock market implications of state-to-state migration flows that are known to provide the basis for social and business networks. We observe sizeable and robust excess return comovement between migration-flow receiving and sending states at both the individual stock and the state portfolio levels. Although we find that migration flows are associated with firms’ business activities, this comovement is not fully explained by economic fundamentals and decreases substantially when firms relocate to other states. In line with the view that migration networks form the basis for a common investor base for receiving and sending states’ stocks, we find that a) receiving states account for a significant portion of sending states stocks’ trading volume, and b) migration comovement is strongly correlated with the percent of local population born in migration states and more prevalent in states where retail investors display “old home” bias in addition to local bias. Moreover, consistent with the view that migration comovement may be rooted in sentiment shared by a common investor base, we find that it coexists with mispricing, measured by stock return reversals.​

JEL Classification: G12; G14; O15; R23
Keywords: Migration flows; stock return comovement; market efficiency