Comovement and Investment Banking Networks

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

Shane Underwood

Baylor University

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

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

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Shane Underwood (Contact Author)

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4524 (Phone)

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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