Connected stocks

Miguel Anton and Christopher Polk

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: By connecting stocks through common active mutual fund ownership, we forecast cross-sectional variation in return covariance, controlling for similarity in style (in- dustry, size, value, and momentum), the extent of common analyst coverage, and other pair characteristics. We argue this covariance is due to contagion based on re- turn decomposition evidence, cross-sectional heterogeneity in the extent of the e¤ect, and the magnitude of average abnormal returns to a cross-stock reversal trading strat- egy exploiting information in these connections. We show that the typical long/short hedge fund covaries negatively with this strategy suggesting that hedge funds may potentially exacerbate the price dislocation we document.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2010-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/43098/ Open access version. (application/pdf)

Related works:
Journal Article: Connected Stocks (2014)
Working Paper: Connected Stocks (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:43098

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