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Investor sentiment and return comovements: evidence from stock splits and headquarters changes

journal contribution
posted on 2013-07-01, 00:00 authored by A Kumar, J K Page, O G Spalt
We examine whether the trading activities of retail and institutional investors cause comovements in stock returns. Around stock splits, retail trading correlations (RTCs) decrease with stocks in the presplit price range and increase with stocks in the post-split price range. These shifts in RTCs induce changes in return comovements. In the cross section, return comovements among low-priced stocks are amplified when retail trades are more correlated and when aggregate uncertainty amplifies behavioral biases. We find similar patterns among local stocks and when firms change their corporate headquarters. In contrast to retail trading, institutional trading attenuates return comovements.

History

Journal

Review of finance

Volume

17

Issue

3

Pagination

921 - 953

Publisher

Oxford University Press

Location

Oxford, Eng.

ISSN

1572-3097

eISSN

1573-692X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2012, The Authors

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