Comovement and Investment Banking Networks

Grullon, Gustavo; Underwood, Shane; Weston, James

doi:10.2139/ssrn.1653479

Comovement and Investment Banking Networks

Journal of Financial Economics (JFE), Vol. 113, No. 1, 2014

51 Pages Posted: 5 Aug 2010 Last revised: 4 Jul 2014

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: February 5, 2014

Abstract

We test the hypothesis that investment banking networks affect stock prices and trading behavior. Consistent with the notion that investment banks serve as information hubs for segmented groups of investors, the stock prices of firms that use the same lead underwriter during their equity offerings tend to move together. We also find that when firms switch underwriters between their initial public offering (IPO) and a seasoned equity offering (SEO), they comove less with the stocks associated with the old bank and more with the stocks associated with the new bank. This change in comovement is greater for stocks completing their first SEO and for those experiencing large changes in institutional ownership.

Keywords: comovement, investment banking

JEL Classification: G12, G24

Suggested Citation: Suggested Citation

Grullon, Gustavo and Underwood, Shane and Weston, James Peter, Comovement and Investment Banking Networks (February 5, 2014). Journal of Financial Economics (JFE), Vol. 113, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=1653479 or http://dx.doi.org/10.2139/ssrn.1653479