Market-Wide Price Pressures, Excess Comovement, and a Transient Factor in Stock Returns

65 Pages Posted: 18 Mar 2011 Last revised: 21 Dec 2011

Yuriy Kitsul

Board of Governors of the Federal Reserve System

Reza S. Mahani

Georgia State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 16, 2011

Abstract

In our asymmetric-information asset pricing model, commonality in uninformed trading translates into a transient factor in returns. The factor is capable of simultaneously producing negative signs of return cross-autocorrelations, a feature that we document in data, and excess comovement in returns. We also estimate informational frictions in the cross-section of stock returns and show that the transient friction (time needed for temporary price pressures to disappear) increases in rm size. Further analysis shows that transient frictions are higher for stocks more heavily traded by passive-style institutional investors and that stocks of larger companies are more subject to such persistent trading.

Suggested Citation

Kitsul, Yuriy and Mahani, Reza S., Market-Wide Price Pressures, Excess Comovement, and a Transient Factor in Stock Returns (January 16, 2011). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1785786 or http://dx.doi.org/10.2139/ssrn.1785786

Yuriy Kitsul

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Reza S. Mahani (Contact Author)

Georgia State University - Department of Finance ( email )

1237 RCB building
35 Broad street
Atlanta, GA 30303
United States
(404) 413-7347 (Phone)
(404) 413-7312 (Fax)

HOME PAGE: http://www2.gsu.edu/mahani

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