Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 93, Issue 1, Pages 37-50Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2008.09.002
Keywords
Comovement; Price
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Similarly priced stocks move together. Stocks that undergo splits experience an increase in comovement with low-priced stocks and a decrease in their comovement with high-priced stocks. Price-based comovement is not explained by economic fundamentals, firm size, or changes in liquidity or information diffusion. The shift in comovement following splits is greater for large stocks, high-priced stocks, and when investor sentiment is high. In the full cross-section, price-based portfolios explain variation in stock-level returns after controlling for movements in the market and industry portfolios as well as portfolios based on size, book-to-market, transaction costs, and return momentum. The results suggest that investors categorize stocks based on price. (C) 2009 Elsevier B.V. All rights reserved.
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