Information‐driven stock price comovement

Travis Box and Danjue Shang

Journal of Financial Research, 2021, vol. 44, issue 2, 403-429

Abstract: 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.

Date: 2021
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https://doi.org/10.1111/jfir.12245

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:44:y:2021:i:2:p:403-429

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