We examine whether the trading activities of retail and institutional investors cause comovements in stock returns. Around stock splits, retail trading correlations (RTCs) decrease with stocks in the presplit price range and increase with stocks in the post-split price range. These shifts in RTCs induce changes in return comovements. In the cross section, return comovements among low-priced stocks are amplified when retail trades are more correlated and when aggregate uncertainty amplifies behavioral biases. We find similar patterns among local stocks and when firms change their corporate headquarters. In contrast to retail trading, institutional trading attenuates return comovements.
ASJC Scopus subject areas
- Economics and Econometrics