Investor attention and time-varying comovements

Lin Peng, Wei Xiong, Tim Bollerslev

Research output: Contribution to journalArticlepeer-review

37 Scopus citations

Abstract

This paper analyses the effect of an increase in market-wide uncertainty on information flow and asset price comovements. We use the daily realised volatility of the 30-year treasury bond futures to assess macroeconomic shocks that affect market-wide uncertainty. We use the ratio of a stock's idiosyncratic realised volatility with respect to the S&P500 futures relative to its total realised volatility to capture the asset price comovement with the market. We find that market volatility and the comovement of individual stocks with the market increase contemporaneously with the arrival of market-wide macroeconomic shocks, but decrease significantly in the following five trading days. This pattern supports the hypothesis that investors shift their (limited) attention to processing market-level information following an increase in market-wide uncertainty and then subsequently divert their attention back to asset-specific information.

Original languageEnglish (US)
Pages (from-to)394-422
Number of pages29
JournalEuropean Financial Management
Volume13
Issue number3
DOIs
StatePublished - Jun 1 2007

All Science Journal Classification (ASJC) codes

  • Accounting
  • Economics, Econometrics and Finance(all)

Keywords

  • Comovement
  • Information flow
  • Limited attention

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