Information, Analysts, and Stock Return Comovement
National University of Singapore (NUS) - Department of Finance
University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER)
UNSW Australia Business School, School of Banking and Finance
Bernard Yin Yeung
National University of Singapore - Business School
February 3, 2015
AFA 2011 Denver Meetings Paper
Analysts disproportionately follow firms whose fundamentals correlate more with those of other firms in their industries. This supports models of profit-maximizing information intermediaries preferentially producing information valuable in pricing more stocks. Designating highly followed firms whose fundamentals best predict those of other firms in the industry as bellwether firms, we observe unidirectional information spillovers from bellwether firms. Specifically, when analysts revise a bellwether firm’s earning forecast, it significantly changes prices of other firms; however, revisions for less intensely followed firms do not change heavily followed firms’ prices. Unidirectional information spillovers explain how more accurately priced stocks might exhibit more comovement.
Number of Pages in PDF File: 55
Keywords: Analysts; Return comovement; Information spillover; Earnings forecasts; Bellwether firms
JEL Classification: G14
Date posted: March 14, 2010 ; Last revised: February 12, 2015
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