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Connected stocks

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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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:
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: 15 Sep 2023 23:22

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