Does Correlated Analyst Coverage Explain Excess Comovement?
Ryan D. Israelsen
Indiana University Bloomington - Department of Finance
July 19, 2012
AFA 2012 Chicago Meetings Paper
Using a measure of common analyst coverage, I find evidence that correlated information is responsible for a significant amount of excess comovement in stock returns. In particular: (1) Stocks with similar sets of analysts tend to exhibit more excess comovement - controlling for industry and other variables, (2) This effect is strongest among "star analysts" and when weighting by earnings forecast precision, (3) Exogenous changes in commonality in analyst coverage around brokerage firm mergers and additions to an index lead to changes in excess comovement, and (4) A trading strategy based on analyst coverage generates alphas of 4% per month. Similar but weaker results exist using analysts from the same firm or analysts who previously worked for the same firm.
Number of Pages in PDF File: 48
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, G24working papers series
Date posted: April 4, 2010 ; Last revised: July 24, 2012
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