Price-Based Return Comovement

42 Pages Posted: 25 Mar 2008 Last revised: 8 Jul 2009

See all articles by Byoung-Hyoun Hwang

Byoung-Hyoun Hwang

Cornell University - Dyson School of Applied Economics and Management; Korea University - Department of Finance

T. Clifton Green

Emory University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2008

Abstract

Similarly priced stocks move together. Stocks that undergo splits experience an increase in comovement with lower priced stocks and a decrease in their comovement with higher 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-tomarket, transaction costs, and return momentum. The results suggest that investors categorize stocks based on price.

Keywords: G14

JEL Classification: Price, Return Comovement

Suggested Citation

Hwang, Byoung-Hyoun and Green, T. Clifton, Price-Based Return Comovement (September 1, 2008). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1107395 or http://dx.doi.org/10.2139/ssrn.1107395

Byoung-Hyoun Hwang

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

HOME PAGE: http://www.bhwang.com

Korea University - Department of Finance

Seoul, 136-701
United States

T. Clifton Green (Contact Author)

Emory University - Department of Finance ( email )

1300 Clifton Rd.
Atlanta, GA 30322-2710
United States
404-727-5167 (Phone)
404-727-5238 (Fax)

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