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Connected stocks

Anton, Miguel and Polk, Christopher (2014) Connected stocks. Journal of Finance, 69 (3). 1099 - 1127. ISSN 0022-1082

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Identification Number: 10.1111/jofi.12149

Abstract

We connect stocks through their common active mutual fund owners. We show that the degree of shared ownership forecasts cross‐sectional variation in return correlation, controlling for exposure to systematic return factors, style and sector similarity, and many other pair characteristics. We argue that shared ownership causes this excess comovement based on evidence from a natural experiment—the 2003 mutual fund trading scandal. These results motivate a novel cross‐stock‐reversal trading strategy exploiting information contained in ownership connections. We show that long‐short hedge fund index returns covary negatively with this strategy, suggesting these funds may exacerbate this excess comovement.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/15406261
Additional Information: © 2014 The American Finance Association
Divisions: Finance
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Date Deposited: 23 May 2014 13:10
Last Modified: 20 May 2020 02:54
Projects: EMAIFAP–FP7-PEOPLE-2011-Marie Curie CIG
Funders: European Commission
URI: http://eprints.lse.ac.uk/id/eprint/37374

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