Stock Price Comovement and the Market for Information
University of Mississippi - Department of Finance
May 13, 2015
I introduce an approach for the empirical analysis of asset price comovement that relates the inter-firm textual similarity of newswire items to their equity return correlation. I find that this measure of information environment similarity can predict an economically meaningful portion of future cross-firm price comovement even after accounting for the pair’s contemporaneous return correlation. I also demonstrate how the effectiveness of information environment similarity as predictor of comovement responds to aggregate market states, and offer empirical support for an existing theory of information driven comovement. Finally, I explore the newswire’s role as a provider of information about individual firm systematic risk.
Number of Pages in PDF File: 103
Keywords: Comovement, Dynamic Panel Estimation, Textual Analysis, Correlation
JEL Classification: C33, C53, D83, G00, G11, G12, G14
Date posted: September 4, 2012 ; Last revised: October 26, 2016