Sell-Side Analyst Research and Stock Comovement
Bauer College of Business University of Houston
Michael J. Rebello
University of Texas at Dallas - Naveen Jindal School of Management
University of Texas at Dallas - School of Management
March 1, 2012
We examine whether sell-side analyst research generates comovement in stock returns. Each year, we form pairs of stocks and show that analysts who cover both stocks in a pair expect their future earnings to be more highly correlated than do analysts who cover only one stock in the pair. These correlation expectations have pricing consequences. The price reactions of a pair of stocks to a forecast or recommendation are closer when the issuing analyst covers both stocks than when the analyst covers only one. Moreover, the daily stock return correlation between stocks in a pair increases with the fraction of analysts covering both stocks and the fraction of forecasts issued by analysts covering both stocks. Collectively, the evidence is consistent with stronger information spillovers and return comovement between stocks that share coverage from the same analysts.
Number of Pages in PDF File: 40
Keywords: Analyst coverage, Return correlation, Comovement, Spillover, Event studyworking papers series
Date posted: March 17, 2012
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