Stock Return Comovement When Investors are Distracted: More, and More Homogeneous

32 Pages Posted: 19 May 2020

See all articles by Michael Ehrmann

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

David-Jan Jansen

De Nederlandsche Bank ; Vrije Universiteit Amsterdam, School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May, 2020

Abstract

This paper tests whether fluctuations in investors' attention affect stock return comovement with national and global markets, and which stocks are most affected. We measure fluctuations in investor attention using 59 high-profile soccer matches played during stock market trading hours at the three editions of the FIFA World Cup between 2010 and 2018. Using intraday data for more than 750 firms in 19 countries, we find that distracted investors shift attention away from firm-specific and from global news. When movements in global stock markets are large, the pricing of global news reverts back to normal, but firm-specific news keep being priced less, leading to increased comovement of stock returns with the national stock market. This increase is economically large, and particularly strong for those stocks that typically comove little with the national market, thereby leading to a convergence in betas across stocks.

Keywords: comovement, investor attention, stock returns

JEL Classification: G12, G15, G41

Suggested Citation

Ehrmann, Michael and Jansen, David-Jan, Stock Return Comovement When Investors are Distracted: More, and More Homogeneous (May, 2020). ECB Working Paper No. 20202412, Available at SSRN: https://ssrn.com/abstract=3605158

Michael Ehrmann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344/7327 (Phone)
+49 69 1344/6000 (Fax)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

David-Jan Jansen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

HOME PAGE: http://sites.google.com/site/djansenresearch

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
89
Abstract Views
534
rank
354,702
PlumX Metrics