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Price-based return comovement

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

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.

Suggested Citation

  • Green, T. Clifton & Hwang, Byoung-Hyoun, 2009. "Price-based return comovement," Journal of Financial Economics, Elsevier, vol. 93(1), pages 37-50, July.
    • Handle: RePEc:eee:jfinec:v:93:y:2009:i:1:p:37-50
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