Comovement

45 Pages Posted: 5 Nov 2008

See all articles by Nicholas Barberis

Nicholas Barberis

National Bureau of Economic Research (NBER); Yale School of Management

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: October 2003

Abstract

We consider two broad views of return comovement: the traditional view, derived from frictionless economies with rational investors, which attributes it to comovement in news about fundamental value, and an alternative view, in which market frictions or noise-trader sentiment delink it from comovement in fundamentals. Building on Vijh (1994), we use data on inclusions into the S&P 500 to distinguish these views. After inclusion, a stock's beta with the S&P goes up. In bivariate regressions which control for the return of non-S&P stocks, the increase in S&P beta is even larger. These results are generally stronger in more recent data. Our findings cannot easily be explained by the fundamentals-based view and provide new evidence in support of the alternative friction- or sentiment-based view.

Suggested Citation

Barberis, Nicholas and Barberis, Nicholas and Shleifer, Andrei and Wurgler, Jeffrey A., Comovement (October 2003). NYU Working Paper No. S-DRP-03-18, Available at SSRN: https://ssrn.com/abstract=1295855

Nicholas Barberis (Contact Author)

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Andrei Shleifer

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Jeffrey A. Wurgler

NYU Stern School of Business ( email )

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