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Comovement as an Investment Tool

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Author Info
Brad Cornell (Anderson School of Management)
Abstract

This paper develops a new tool for discovering mispriced securities based on an analysis of comovement in asses prices. Recent research in finance has demonstrated that comovement can be due to the trading patterns of noise traders as well as underlying economic fundamentals. Because comovement can be measured much more accurately than expected returns, it can be used to identify securities for which the influence of noise traders is high. Those are situations in which mispricing is most likely to exist. Therefore, analysis of comovement can provide important information about potential mispricing.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1242&context=anderson/fin
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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1242.

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Date of creation: 01 Sep 2003
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Handle: RePEc:cdl:anderf:1242

Note: oai:cdlib1:anderson/fin-1242
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  1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  2. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March. [Downloadable!] (restricted)
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  3. Gikas A. Hardouvelis & Rafael La Porta & Thierry A. Wizman, 1993. "What moves the discount on country equity funds?," Research Paper 9324, Federal Reserve Bank of New York.
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  4. Barberis, Nicholas & Shleifer, Andrei, 2003. "Style investing," Journal of Financial Economics, Elsevier, vol. 68(2), pages 161-199, May. [Downloadable!] (restricted)
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  5. G. William Schwert, 2002. "Anomalies and Market Efficiency," NBER Working Papers 9277, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March. [Downloadable!] (restricted)
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