Information Driven Stock Price Comovement

53 Pages Posted: 2 Aug 2018

See all articles by Travis Box

Travis Box

Clemson University

Danjue Shang

University of Arizona; Utah State University - Department of Economics and Finance

Date Written: July 2018

Abstract

This paper provides a new empirical strategy for testing models of information choice based on observing which types of information are consumed and incorporated into asset prices. Consistent with the predictions of the information driven comovement hypothesis (Veldkamp 2006), we find that stock price comovement is stronger when investors consume qualitative information about firms whose payoffs covary strongly with many others. Furthermore, as aggregate correlation falls, so does the demand for these high covariance signals. Our findings imply that investor information consumption choices are shaped by a market for information, and that these choices can drive excessive stock price comovement.

Keywords: Comovement, Information Consumption, Textual Analysis, Correlation

JEL Classification: C33, C53, D83, G00, G11, G12, G14

Suggested Citation

Box, Travis and Shang, Danjue and Shang, Danjue, Information Driven Stock Price Comovement (July 2018). Available at SSRN: https://ssrn.com/abstract=3216694 or http://dx.doi.org/10.2139/ssrn.3216694

Travis Box (Contact Author)

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

Danjue Shang

Utah State University - Department of Economics and Finance ( email )

Logan, UT 84322-1400
United States

University of Arizona ( email )

Department of Finance
Eller College of Management
Tucson, AZ 85721
United States

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