Anton, Miguel and Polk, Christopher (2010) Connected stocks. FMG discussion papers, 651. Financial Markets Group, 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://www2.lse.ac.uk/fmg/home.aspx |
| Additional Information: | © 2010 Financial Markets Group, London School of Economics and Political Science |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | 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 |
| Sets: | Departments > Finance Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| Identification Number: | 651 |
| URL: | http://eprints.lse.ac.uk/43098/ |
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