Analyst Coverage, Information, and Bubbles

45 Pages Posted: 14 Dec 2009 Last revised: 28 Jun 2012

Sandro C. Andrade

University of Miami - Department of Finance

Jiangze Bian

University of International Business and Economics (UIBE)

Timothy R. Burch

University of Miami - Department of Finance

Date Written: June 2012

Abstract

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

Andrade, Sandro C. and Bian, Jiangze 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

Sandro C. Andrade (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

HOME PAGE: http://moya.bus.miami.edu/~sandrade/

Jiangze Bian

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Timothy R. Burch

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-1509 (Phone)
305-284-4800 (Fax)

HOME PAGE: http://www.bus.miami.edu/~tburch

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