Abstract

http://ssrn.com/abstract=1584002
 
 

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Does Common Analyst Coverage Explain Excess Comovement?


Ryan D. Israelsen


Indiana University - Kelley School of Business - Department of Finance

August 8, 2014

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
AFA 2012 Chicago Meetings Paper

Abstract:     
This paper shows that a largely-ignored source of commonality - correlated errors in news about fundamentals - is an important, rational determinant of excess comovement. Individual analysts' forecast errors tend to be correlated across stocks. Using a proxy for correlated forecast errors based on analyst coverage, I find that stocks with similar sets of analysts exhibit more excess comovement - controlling for industry and other variables. Exogenous changes in commonality in analyst coverage around (1) brokerage firm mergers and (2) additions to an index lead to changes in excess comovement. This information channel can explain 10% to 25% of the increase in comovement around additions to the S&P500 index.

Number of Pages in PDF File: 51

Keywords: Analyst Coverage, Comovement, Excess Comovement, Information, Learning, S&P500, Social Networks, Stock Returns, Earnings Forecasts, Earnings, Forecasts, Correlation, Style Investors

JEL Classification: D83, G12, G14, G24


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Date posted: April 4, 2010 ; Last revised: February 26, 2016

Suggested Citation

Israelsen, Ryan D., Does Common Analyst Coverage Explain Excess Comovement? (August 8, 2014). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1584002 or http://dx.doi.org/10.2139/ssrn.1584002

Contact Information

Ryan D. Israelsen (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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