Investor attention and time-varying comovements
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. © 2007 The Authors Journal compilation © 2007 Blackwell Publishing Ltd.
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Related Subject Headings
- Finance
- 3502 Banking, finance and investment
- 3501 Accounting, auditing and accountability
- 1502 Banking, Finance and Investment
Citation
Published In
DOI
EISSN
ISSN
Publication Date
Volume
Issue
Start / End Page
Related Subject Headings
- Finance
- 3502 Banking, finance and investment
- 3501 Accounting, auditing and accountability
- 1502 Banking, Finance and Investment