45 Pages Posted: 14 Dec 2009 Last revised: 28 Jun 2012
Date Written: June 2012
This paper uses the unique setting of the 2007 stock market bubble in China to examine whether information dissemination mitigates bubbles. Using multiple measures of bubble intensity for each stock, we find significantly smaller bubbles in stocks with greater analyst coverage. The abating effect of analyst coverage on bubble intensity is weaker when there is greater disagreement among analysts. This suggests that, in line with resale option theories of bubbles, one channel through which analyst coverage mitigates bubbles is by coordinating investors' beliefs. Consistent with this particular information mechanism, stock turnover is negatively correlated with analyst coverage, and the abating effect of analyst coverage on stock turnover is weaker when there is more disagreement among analysts.
Keywords: bubbles, information, security analysts
JEL Classification: G12, G14, G18
Suggested Citation: Suggested Citation
Andrade, Sandro C. and Bian, Jiang and Burch, Timothy R., Analyst Coverage, Information, and Bubbles (June 2012). Fourth Singapore International Conference on Finance 2010 Paper; Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1523423 or http://dx.doi.org/10.2139/ssrn.1523423