Trading on Coincidences

33 Pages Posted: 12 Nov 2014 Last revised: 14 Mar 2015

See all articles by Alexander Chinco

Alexander Chinco

University of Illinois at Urbana-Champaign - College of Business

Date Written: March 2, 2015

Abstract

This paper develops a model showing why traders might use coincidences to identify promising investment opportunities that are worth investigating further. The model predicts that, if both National Semiconductor and Sequans Communications realize top-10 returns (i.e., the semiconductor industry displays a coincidence), then the rest of the industry will have positive abnormal returns in the following month. The data confirm this prediction. Industries with a coincidence in the previous quarter have abnormal returns of 2.02% even after excluding the coincident firms. Industries with one top-10 return and one 11:20 return do not display this pattern. The results are robust to including controls for firm-specific momentum, industry-specific momentum, and within industry cross-autocorrelation. The findings also generalize to looking at geography-based top-10 coincidences.

Keywords: Market Scale, Cognitive Control, Behavioral Finance, Coincidences

JEL Classification: D83, D84, G02, G12, G14

Suggested Citation

Chinco, Alexander, Trading on Coincidences (March 2, 2015). Available at SSRN: https://ssrn.com/abstract=2522448 or http://dx.doi.org/10.2139/ssrn.2522448

Alexander Chinco (Contact Author)

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

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