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  • Does program trading contribute to excess comovement of stock returns?

    Author(s)
    Li, Mingyi
    Yin, Xiangkang
    Zhao, Jing
    Griffith University Author(s)
    Li, Mingyi
    Year published
    2020
    Metadata
    Show full item record
    Abstract
    Daily returns of stocks with high program trading comove more with each other but less with others. This significant comovement is disconnected with market movements and news of fundamentals and becomes stronger when market uncertainty is higher. It can be explained by neither the hypotheses of gradual information diffusion and liquidity provision nor the effects of quantitative trading signals, earnings announcements and index fund trading. Its non-fundamental nature is further demonstrated by the observation of program trading stimulating return reversals. Underlying this comovement is the high persistence of program ...
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    Daily returns of stocks with high program trading comove more with each other but less with others. This significant comovement is disconnected with market movements and news of fundamentals and becomes stronger when market uncertainty is higher. It can be explained by neither the hypotheses of gradual information diffusion and liquidity provision nor the effects of quantitative trading signals, earnings announcements and index fund trading. Its non-fundamental nature is further demonstrated by the observation of program trading stimulating return reversals. Underlying this comovement is the high persistence of program trading. Our findings support the theory of habitat investing and demonstrate program trading creates a distinct source of excess return comovement.
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    Journal Title
    Journal of Empirical Finance
    Volume
    59
    DOI
    https://doi.org/10.1016/j.jempfin.2020.11.001
    Subject
    Applied economics
    Econometrics
    Social Sciences
    Business, Finance
    Business & Economics
    Program trading
    Publication URI
    http://hdl.handle.net/10072/404447
    Collection
    • Journal articles

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