The Review of Financial Studies (2015), Vol. 28 (11): 3153-3187.
54 Pages Posted: 14 Mar 2010 Last revised: 3 Jun 2017
Date Written: July 30, 2015
Analysts follow disproportionally firms whose fundamentals correlate more with those of their industry peers. This coverage pattern supports models of profit-maximizing information intermediaries producing preferentially information valuable in pricing more stocks. We designate highly followed firms whose fundamentals best predict those of peer firms as bellwether firms. When analysts revise a bellwether firm’s earning forecast, it changes the prices of other firms significantly; however, revisions for firms that are less intensely followed do not change the prices of heavily followed firms. Unidirectional information spillovers explain how the more accurately priced stocks might exhibit more comovement.
Keywords: Analysts; Return comovement; Information spillover; Earnings forecasts; Bellwether firms
JEL Classification: G14
Suggested Citation: Suggested Citation
Hameed, Allaudeen and Morck, Randall and Shen, Jianfeng and Yeung, Bernard Yin, Information, Analysts, and Stock Return Comovement (July 30, 2015). The Review of Financial Studies (2015), Vol. 28 (11): 3153-3187.; AFA 2011 Denver Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1569198 or http://dx.doi.org/10.2139/ssrn.1569198