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Information‐driven stock price comovement
Author(s) -
Box Travis,
Shang Danjue
Publication year - 2021
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12245
Subject(s) - economics , stock (firearms) , stock price , capital asset pricing model , covariance , econometrics , stock market , monetary economics , financial economics , mechanical engineering , paleontology , statistics , mathematics , horse , series (stratigraphy) , engineering , biology
By observing changes in stock price comovement for individual firm‐pairs, we can infer which types of information are consumed and incorporated into asset prices. Consistent with the predictions of the information‐driven comovement hypothesis, we find that stock price comovement is stronger when investors consume qualitative information about firms whose payoffs covary strongly with many others. Furthermore, as aggregate correlation falls, so does the demand for these high‐covariance signals. Our findings imply that investor information consumption choices are shaped by a market for information and that these choices can sometimes drive excessive stock price comovement.