Common investor coverage and excess return comovement: Evidence from Seeking Alpha

Investors often cover a limited number of stocks, leading to a certain level of correlation in their information sets. Despite its importance, the role of this correlation in determining the return comovement between stock pairs has been less explored. In this study, we introduce a novel measure of common investor coverage, calculated using the number of co-commentators normalized by the geometric average number of commentators for each stock pair on Seeking Alpha. This measure aims to capture the underlying correlation in investors’ information sets. Our findings reveal a positive relationship between common investor coverage and excess comovement, which cannot be explained by traditional asset pricing models. Moreover, we observe a stronger relationship between common investor coverage and excess return comovement for stocks favored by retail investors, particularly after the implementation of the reward policy in 2011. This suggests that retail investors may play a crucial role in driving this relationship.