Industry information uncertainty and stock return comovement

Abstract

This study investigates the association between industry information uncertainty and stock return comovement within industries. We test two predictions on industry comovement given correlated overweight among investors on past industry returns when there is greater industry-level uncertainty: (1) we find that stocks in high-uncertainty industries are more likely to move with other stocks in the same industry; (2) we find the higher prevalence of industry price continuation in high-uncertainty industries. The results suggest that stock comovement in industries with high information uncertainty is more likely driven by correlated bias in trading activities and is not related to common fundamental shocks.