Corporate Fundamentals and Stock Price Co-Movement

Lyuhong Wang, Jiawei Jiang and Yang Zhao

Papers from arXiv.org

Abstract: We introduce an innovative framework that leverages advanced big data techniques to analyze dynamic co-movement between stocks and their underlying fundamentals using high-frequency stock market data. Our method identifies leading co-movement stocks through four distinct regression models: Forecast Error Variance Decomposition, transaction volume-normalized FEVD, Granger causality test frequency, and Granger causality test days. Validated using Chinese banking sector stocks, our framework uncovers complex relationships between stock price co-movements and fundamental characteristics, demonstrating its robustness and wide applicability across various sectors and markets. This approach not only enhances our understanding of market dynamics but also provides actionable insights for investors and policymakers, helping to mitigate broader market volatilities and improve financial stability. Our model indicates that banks' influence on their peers is significantly affected by their wealth management business, interbank activities, equity multiplier, non-performing loans, regulatory requirements, and reserve requirement ratios. This aids in mitigating the impact of broader market volatilities and provides deep insights into the unique influence of banks within the financial ecosystem.

Date: 2024-11
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-fmk and nep-mst
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