Excess comovement and investor attention in the Japanese stock market

Abstract

We investigate the monthly excess comovement of three groups categorized by two industry classifications from 1985 to 2013 . Defining excess comovement as a correlation between two stocks beyond what would be justified by the Fama-French three factor model, we find that 42 % of excess comovement for the group of stocks within the same sectors in the 33 sector classification can be explained by some variables, including the attention measurement, short-term interest rate, market liquidity, market-wide uncertainty, and information heterogeneity. Results support the hypothesis that excess comovement among stocks within the same sectors correlates positively with the corresponding investor attention.