The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Connected Stocks
Published: 02/20/2014 | DOI: 10.1111/jofi.12149
MIGUEL ANTÓN, CHRISTOPHER POLK
We connect stocks through their common active mutual fund owners. We show that the degree of shared ownership forecasts cross‐sectional variation in return correlation, controlling for exposure to systematic return factors, style and sector similarity, and many other pair characteristics. We argue that shared ownership causes this excess comovement based on evidence from a natural experiment—the 2003 mutual fund trading scandal. These results motivate a novel cross‐stock‐reversal trading strategy exploiting information contained in ownership connections. We show that long‐short hedge fund index returns covary negatively with this strategy, suggesting these funds may exacerbate this excess comovement.