Geographic Diffusion of Accounting Information, Analyst Behavior, and Return Predictability

52 Pages Posted: 21 Oct 2013 Last revised: 26 Jun 2020

See all articles by Jawad M. Addoum

Jawad M. Addoum

Cornell SC Johnson College of Business

Alok Kumar

University of Miami - Miami Herbert Business School

Kelvin Law

Nanyang Business School, Nanyang Technological University

Date Written: June 26, 2020

Abstract

We use a new disclosure-based approach to show that value-relevant information about publicly-traded firms is geographically distributed within the United States and the market is slow in aggregating this information. Firm fundamentals such as earnings and cash flows can be predicted using the fundamentals of other firms in economically relevant U.S. states, but sell-side equity analysts and institutional investors only partially incorporate this information in their respective earnings forecasts and holdings. Consequently, a Long−Short trading strategy that exploits the slow diffusion of geographic information earns an annual risk-adjusted return of over 9%.

Keywords: Geographic connections, information diffusion, sell-side analysts, institutional investors, earnings and return predictability

Suggested Citation

Addoum, Jawad M. and Kumar, Alok and Law, Kelvin, Geographic Diffusion of Accounting Information, Analyst Behavior, and Return Predictability (June 26, 2020). Available at SSRN: https://ssrn.com/abstract=2343335 or http://dx.doi.org/10.2139/ssrn.2343335

Jawad M. Addoum

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

517B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://sites.google.com/view/alokmiami/home

Kelvin Law

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

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