Faster than flying: High-speed rail, investors, and firms

We examine the impact of staggered high-speed rail (HSR) connection events between city pairs in China on retail investor behavior and stock market equilibrium outcomes. We find that HSR introductions between investor-firm city pairs promote intercity retail block purchases and cross-city web searches, and increase return comovement among firms in connected cities. Enhanced city connectivity is associated with improved firm valuation, increased turnover, better liquidity, and reduced prevalence of large trades. These effects tend to be driven by connected city pairs with a distance below 1,500 km, for which HSR is faster than flying.