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Information, Analysts, and Stock Return ComovementAllaudeen HameedNational University of Singapore (NUS) - Department of Finance Randall MorckUniversity of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER) Jianfeng ShenThe University of New South Wales - School of Banking and Finance, Australian School of Business Bernard Yin YeungNUS Business School, National University of Singapore March 2010 NBER Working Paper No. w15833 Abstract: We examine information spillover as a source of stock return synchronicity, where information about highly-followed “prominent” stocks is used to price other “neglected” stocks sharing a common fundamental component. We find that stocks followed by few analysts co-move significantly with firm-specific fluctuations in the prices of highly followed stocks in the same industry, but do not observe the converse. This effect is more prominent in industries where analysts follow fewer stocks. Earnings forecast revisions for highly followed stocks cause price changes in little followed stocks, but the converse is again not observed. This is consistent with information spillover being primarily unidirectional – flowing from prominent to neglect stocks, but not vice versa. These findings also validate models of specialized information intermediaries in stock markets assisting the information capitalization process.
Number of Pages in PDF File: 49 working papers seriesDate posted: March 22, 2010Suggested CitationContact Information
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