Investor Attention and Time-Varying Comovements

39 Pages Posted: 3 Oct 2006

See all articles by Wei Xiong

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Tim Bollerslev

Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: August 11, 2006

Abstract

This paper analyzes the effect of an increase in market-wide uncertainty on information flow and asset price comovements. We use the daily realized volatility of the 30-year treasury bond futures to assess macroeconomic shocks that affect market-wide uncertainty. We use the ratio of a stock's idiosyncratic realized volatility with respect to the S&P 500 futures relative to its total realized volatility to capture the asset price comovement with the market. We find that market volatility and the comovement of individual stocks with the market increase contemporaneously with the arrival of market-wide macroeconomic shocks, but decrease significantly in the following five trading days. This pattern supports the hypothesis that investors shift their (limited) attention to processing market-level information following an increase in market-wide uncertainty and then subsequently divert their attention back to asset-specific information.

Keywords: Investor Attention, information processing, comovements

Suggested Citation

Xiong, Wei and Peng, Lin and Bollerslev, Tim, Investor Attention and Time-Varying Comovements (August 11, 2006). Available at SSRN: https://ssrn.com/abstract=934188 or http://dx.doi.org/10.2139/ssrn.934188

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lin Peng (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Tim Bollerslev

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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