Pamplin College of Business
Blacksburg, VA 24061
Institutional Affiliation: Virginia Tech
NBER Working Papers and Publications
|June 2015||Comovement Revisited|
with Honghui Chen, Robert F. Whitelaw: w21281
Recent evidence of excessive comovement among stocks following index additions (Barberis, Shleifer, and Wurgler, 2005) and stock splits (Green and Hwang, 2009) challenges traditional finance theory. Based on a simple model, we show that the bivariate regressions relied upon in the literature often provide little or no information about the economic magnitude of the phenomenon of interest, and the coefficients in these regressions are very sensitive to time-variation in the characteristics of the return processes that are unrelated to excess comovement. Instead, univariate regressions of the stock return on the returns of the group it is leaving (e.g., non-S&P stocks) and the group it is joining (e.g., S&P stocks) reveal the relevant information. When we reexamine the empirical evidence ...
Published: Honghui Chen & Vijay Singal & Robert F. Whitelaw, 2016. "Comovement revisited," Journal of Financial Economics, vol 121(3), pages 624-644.