Ubiquitous Comovement

81 Pages Posted: 21 May 2019 Last revised: 27 Aug 2020

See all articles by William Grieser

William Grieser

Texas Christian University ; Texas Christian University - M.J. Neeley School of Business

Jung Hoon Lee

Vanderbilt University - Finance

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Date Written: February 4, 2020

Abstract

A large literature explores whether asset returns comove in excess of what can be explained by fundamentals, thus suggesting the existence of frictions or behavioral biases. However, we show that comovement is a ubiquitous feature of asset returns that will arise in the presence of latent or mismeasured systematic factors. Therefore, existing empirical tests cannot distinguish between alternate sources of comovement, and several documented interpretations of comovement in favor of particular explanations are premature and warrant reconsideration. We propose new statistical tests of excess comovement that account for latent factors and that exploit additional implications of market efficiency.

Keywords: excess comovement, fundamentals, rational markets, behavioral finance, stock returns, factor models

JEL Classification: G11, G12, G14, G40

Suggested Citation

Grieser, William and Lee, Jung Hoon and Zekhnini, Morad, Ubiquitous Comovement (February 4, 2020). Available at SSRN: https://ssrn.com/abstract=3385841 or http://dx.doi.org/10.2139/ssrn.3385841

William Grieser (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Jung Hoon Lee

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
8123603309 (Phone)

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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