Age demographics and stock return comovement

Firms headquartered in two different states that share a high degree of overlap in their age-cohort structures exhibit stock return comovement. Building on prior evidence that generational cohorts shape investors' investment preferences, we argue that cross-state age demographic similarities expand investor bases across states and play a moderator role in the effect of fundamental factors on comovement, as age-based comovement is amplified when states are subject to common shocks that influence their fundamentals, such as industry similarity and geographical proximity. We also demonstrate that age-based comovement is partially driven by non-fundamental factors. First, firms located in states with high age overlap with all other states are mispriced and experience return reversion. Next, firms with a higher (lower) proportion of similarly aged retail (institutional) traders, who are more likely to be subject to sentiment and to exhibit correlated trading behavior disconnected from fundamentals, are likely to experience age-based comovement. Lastly, state pairs with similar age demographics and high inter-migration exhibit comovement, serving as evidence that familiarity-based trading partially drives age-related comovement.