Price-based return comovement

T. Clifton Green and Byoung-Hyoun Hwang

Journal of Financial Economics, 2009, vol. 93, issue 1, 37-50

Abstract: Similarly priced stocks move together. Stocks that undergo splits experience an increase in comovement with low-priced stocks and a decrease in their comovement with high-priced stocks. Price-based comovement is not explained by economic fundamentals, firm size, or changes in liquidity or information diffusion. The shift in comovement following splits is greater for large stocks, high-priced stocks, and when investor sentiment is high. In the full cross-section, price-based portfolios explain variation in stock-level returns after controlling for movements in the market and industry portfolios as well as portfolios based on size, book-to-market, transaction costs, and return momentum. The results suggest that investors categorize stocks based on price.

Keywords: Comovement; Price (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (88)

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