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Communication, Excess Comovement and Factor Structures
Author(s) -
Yang Baozhong
Publication year - 2013
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12043
Subject(s) - asset (computer security) , excess return , network structure , empirical evidence , factor (programming language) , econometrics , empirical research , economics , capital asset pricing model , computer science , mathematics , statistics , paleontology , philosophy , context (archaeology) , computer security , epistemology , machine learning , biology , programming language
This paper develops a model in which investors communicate before trading in a general equilibrium. Investors repeatedly communicate in a social network but have limited knowledge of the network structure and thus do not fully realize the consequences of their communication and belief updating. As a result, asset returns contain excess comovement and more concentrated factor structures than fundamental values do. The model generates testable empirical predictions that are consistent with the empirical literature on excess comovement in asset returns.