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Price-based return comovement

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  • Green, T. Clifton
  • Hwang, Byoung-Hyoun
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    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.

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    File URL: http://www.sciencedirect.com/science/article/B6VBX-4W38RMY-3/2/e8bd3fc74c6022ceba64597007c03f62
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 93 (2009)
    Issue (Month): 1 (July)
    Pages: 37-50

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    Handle: RePEc:eee:jfinec:v:93:y:2009:i:1:p:37-50

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Comovement Price;

    References

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    Cited by:
    1. Berger, Dave & Turtle, H.J., 2012. "Cross-sectional performance and investor sentiment in a multiple risk factor model," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1107-1121.
    2. Wahal, Sunil & Yavuz, M. Deniz, 2013. "Style investing, comovement and return predictability," Journal of Financial Economics, Elsevier, vol. 107(1), pages 136-154.
    3. Bartram, Sohnke M. & Griffin, John & Ng, David, 2010. "How Important Are Foreign Ownership Linkages for International Stock Returns?," Working Papers 10-21, University of Pennsylvania, Wharton School, Weiss Center.
    4. Chia-Hsing Huang & Liang-Chun Ho, 2011. "Do bio-fuel policies lead to speculative behavior?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(2), pages 161-174, July.
    5. Agyei-Ampomah, Sam & Mazouz, Khelifa, 2011. "The comovement of option listed stocks," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2056-2069, August.

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