Ubiquitous Comovement

77 Pages Posted: 21 May 2019 Last revised: 5 Feb 2020

See all articles by William Grieser

William Grieser

Texas Christian University

Jung Hoon Lee

Tulane University - A.B. Freeman School of Business

Morad Zekhnini

Tulane University

Date Written: February 4, 2020

Abstract

A large literature explores whether asset returns comove in excess of what can be explained by fundamentals, therefore indicating the existence of frictions or behavioral biases. However, we show that comovement is a ubiquitous feature of asset returns that will arise in the presence of latent or mismeasured systematic factors. Thus, existing empirical tests cannot distinguish between alternate sources of comovement, and several documented interpretations of comovement in favor of particular explanations are premature and warrant reconsideration. We propose new statistical tests of excess comovement that account for latent factors and that exploit additional implications of market efficiency.

Keywords: excess comovement, fundamentals, rational markets, behavioral finance, stock returns, factor models

JEL Classification: G11, G12, G14, G40

Suggested Citation

Grieser, William and Lee, Jung Hoon and Zekhnini, Morad, Ubiquitous Comovement (February 4, 2020). Available at SSRN: https://ssrn.com/abstract=3385841 or http://dx.doi.org/10.2139/ssrn.3385841

William Grieser (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Jung Hoon Lee

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Morad Zekhnini

Tulane University ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

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