Anton, Miguel and Polk, Christopher (2010) Connected stocks. Financial Markets Group Discussion Papers (651). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
By connecting stocks through common active mutual fund ownership, we forecast cross-sectional variation in return covariance, controlling for similarity in style (in- dustry, size, value, and momentum), the extent of common analyst coverage, and other pair characteristics. We argue this covariance is due to contagion based on re- turn decomposition evidence, cross-sectional heterogeneity in the extent of the e¤ect, and the magnitude of average abnormal returns to a cross-stock reversal trading strat- egy exploiting information in these connections. We show that the typical long/short hedge fund covaries negatively with this strategy suggesting that hedge funds may potentially exacerbate the price dislocation we document.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://www.lse.ac.uk/fmg/publications/discussion-p... |
| Additional Information: | © 2010 The Authors |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies |
| Date Deposited: | 16 Apr 2012 11:13 |
| Last Modified: | 13 Sep 2024 20:17 |
| URI: | http://eprints.lse.ac.uk/id/eprint/43098 |
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