Analyst Initiations of Coverage and Stock Return Synchronicity

44 Pages Posted: 26 Apr 2012  

Steve Crawford

University of Houston

Darren T. Roulstone

Ohio State University (OSU) - Fisher College of Business

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: April, 25 2012

Abstract

We examine how the information produced by analysts when they initiate coverage contributes to the mix of firm-specific, industry-, and market-wide information available about the firm. We hypothesize that the first analyst to initiate coverage provides low cost market and industry information allowing him/her to follow more stocks, whereas subsequent analysts provide firm-specific information to distinguish themselves from existing analysts. We use stock return synchronicity to measure the mix of information available about a firm, with higher synchronicity indicating more industry and market information. Coverage initiations of firms with no prior analyst coverage increase synchronicity suggesting that analysts produce industry- and market-wide information. In contrast, analysts initiating coverage on firms with existing coverage appear to focus on producing firm-specific information as these initiations lead to reduced synchronicity. Together, our findings indicate that the type of information analysts produce at initiation depends on the information provided by other analysts.

Keywords: Stock Return Synchronicity, Financial Analysts, Analyst Initiations

JEL Classification: G10, G14, M40, M41

Suggested Citation

Crawford, Steve and Roulstone, Darren T. and So, Eric C., Analyst Initiations of Coverage and Stock Return Synchronicity (April, 25 2012). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2046233

Steve Crawford

University of Houston ( email )

Houston, TX 77204
United States

Darren T. Roulstone (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States

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