Industry Information Diffusion and the Lead-Lag Effect in Stock Returns

Posted: 25 Jun 2008

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2007

Abstract

I argue that the slow diffusion of industry information is a leading cause of the lead-lag effect in stock returns. I find that the lead-lag effect between big firms and small firms is predominantly an intra-industry phenomenon. Moreover, this effect is driven by sluggish adjustment to negative information, and is robust to alternative determinants of the lead-lag effect. Small, less competitive and neglected industries experience a more pronounced lead-lag effect. The lead-lag effect is related to the post-announcement drift of small firms following the earnings releases of big firms within the industry.

Keywords: G12, G14

Suggested Citation

Hou, Kewei, Industry Information Diffusion and the Lead-Lag Effect in Stock Returns (2007). The Review of Financial Studies, Vol. 20, Issue 4, pp. 1113-1138, 2007. Available at SSRN: https://ssrn.com/abstract=1151155 or http://dx.doi.org/10.1093/rfs/hhm003

Kewei Hou (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

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