The effect of urban density on stock returns: evidence from satellite imagery and firms in the United States

We study how the urban density of the areas where firms are located impacts their stock returns. Using high-resolution satellite images and image segmentation algorithms, we develop measures of building density for the most populated metropolitan statistical areas (MSAs) in the US. We find that firms in urban areas with a higher potential for density increase are perceived as less risky in the stock market because they can feasibly sustain their growth, leading to lower stock returns. This effect is stronger for smaller and younger firms.