Get access

Communication, Excess Comovement and Factor Structures


  • Baozhong Yang

    Corresponding author
    • Address for correspondence: Baozhong Yang, J. Mack Robinson College of Business, Georgia State University, 35 Broad Street, Suite 1243, Atlanta, GA 30303, USA. e-mail:

    Search for more papers by this author
    • The author is at the Georgia State University, Atlanta, GA, USA. The author is grateful to an anonymous referee, the Editor (Peter Pope), Vikas Agarwal, Snehal Banerjee, Peter DeMarzo, Darrell Duffie, Paul Gao, Jayant Kale, Omesh Kini, Ilan Kremer, Lei Jiang, Reza Mahani, Stefan Nagel, Zhen Shi, Ken Singleton, Ilya Strebulaev, Yi Xue, Jeff Zwiebel, and seminar participants at the 2012 China International Conference on Finance, and Stanford University for helpful comments. (Paper received November 15, 2011; revised version accepted June 7, 2013).


This paper develops a model in which investors communicate before trading in a general equilibrium. Investors repeatedly communicate in a social network but have limited knowledge of the network structure and thus do not fully realize the consequences of their communication and belief updating. As a result, asset returns contain excess comovement and more concentrated factor structures than fundamental values do. The model generates testable empirical predictions that are consistent with the empirical literature on excess comovement in asset returns.