Abstract

http://ssrn.com/abstract=1787152
 
 

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Analyst Coverage and Two Puzzles in the Cross Section of Returns


Thomas J. George


University of Houston - Department of Finance

Chuan-Yang Hwang


Nanyang Technological University (NTU)

January 30, 2013

AFA 2012 Chicago Meetings Paper

Abstract:     
We examine a stylized version of Miller's (1977) hypothesis as the explanation of the puzzling ndings of both Chordia, Subrahmanyam and Anshuman (2001) and Ang, Hodrick, Xing and Zhang (2006). Identifying stocks that are prone to disagreement by using low analyst coverage produces results that are strongly consistent with the model's predictions.

The low returns to high return volatility stocks are corrections of optimistic mispricing that arises because information arrivals generate disagreement among traders. Disagreement also implies a negative relation between returns and shocks to trading volume. The abnormal returns to a trading strategy based on idiosyncratic return volatility are explained by the returns to a strategy based on turnover volatility, suggesting that the same economic forces underlie both relations as the model predicts.

Number of Pages in PDF File: 69

Keywords: Idiosyncratic Volatility, Turnover Volatility, Disagreement, Mispricing

JEL Classification: G12, G14

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Date posted: March 18, 2011 ; Last revised: February 4, 2013

Suggested Citation

George, Thomas J. and Hwang, Chuan-Yang, Analyst Coverage and Two Puzzles in the Cross Section of Returns (January 30, 2013). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1787152 or http://dx.doi.org/10.2139/ssrn.1787152

Contact Information

Thomas J. George (Contact Author)
University of Houston - Department of Finance ( email )
Houston, TX 77204
United States
Chuan-Yang Hwang
Nanyang Technological University (NTU) ( email )
Singapore, 639798
Singapore
65-67905003 (Phone)
65-6791-3697 (Fax)
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