Massively Confused Investors Making Conspicuously Ignorant Choices (MCI–MCIC)

Authors

  • Michael S. Rashes

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    • Bracebridge Capital, Cambridge, MA. This paper was written as part of the author's doctoral dissertation at the Harvard University Department of Economics. The author would like to thank participants of the finance workshop at Harvard University, Andrew Metrick, René Stulz, Richard Thaler, Jeff Wurgler, two anonymous referees, and especially John Campbell and Andrei Shleifer, whose comments have helped significantly improve this paper.


ABSTRACT

This paper examines the comovement of stocks with similar ticker symbols. For one such pair of firms, there is a significant correlation between returns, volume, and volatility at short frequencies. Deviations from “fundamental value” tend to be reversed within several days, although there is some evidence that the return comovement persists for longer horizons. Arbitrageurs appear to be limited in their ability to eliminate these deviations from fundamentals. This anomaly allows the observation of noise traders and their effect on stock prices independent of changes in information and expectations.

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