Investor attention and time-varying comovements

Journal Article (Journal Article)

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.

Full Text

Duke Authors

Cited Authors

  • Peng, L; Xiong, W; Bollerslev, T

Published Date

  • June 1, 2007

Published In

Volume / Issue

  • 13 / 3

Start / End Page

  • 394 - 422

Electronic International Standard Serial Number (EISSN)

  • 1468-036X

International Standard Serial Number (ISSN)

  • 1354-7798

Digital Object Identifier (DOI)

  • 10.1111/j.1468-036X.2007.00366.x

Citation Source

  • Scopus