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Information‐driven stock price comovement

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  • Travis Box
  • Danjue Shang

Abstract

By observing changes in stock price comovement for individual firm‐pairs, we can infer which types of information are consumed and incorporated into asset prices. Consistent with the predictions of the information‐driven comovement hypothesis, 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 sometimes drive excessive stock price comovement.

Suggested Citation

  • Travis Box & Danjue Shang, 2021. "Information‐driven stock price comovement," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(2), pages 403-429, June.
    • Handle: RePEc:bla:jfnres:v:44:y:2021:i:2:p:403-429
    DOI: 10.1111/jfir.12245
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    References listed on IDEAS

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