Information, Analysts, and Stock Return Comovement

The Review of Financial Studies (2015), Vol. 28 (11): 3153-3187.

AFA 2011 Denver Meetings Paper

54 Pages Posted: 14 Mar 2010 Last revised: 3 Jun 2017

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Randall Morck

National Bureau of Economic Research (NBER); University of Alberta - Department of Finance and Statistical Analysis

Jianfeng Shen

UNSW Australia Business School, School of Banking and Finance

Bernard Yin Yeung

National University of Singapore - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2015

Abstract

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

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

Allaudeen Hameed (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.bschool.nus.edu.sg/staff_profile/cv.asp?ID=3

Randall K. Morck

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

Jianfeng Shen

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Bernard Yin Yeung

National University of Singapore - Business School ( email )

1 Business Link
Biz 2 Building Level 6
Singapore 117592
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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