Slow Diffusion of State-Level Information and Return Predictability

114 Pages Posted: 21 Oct 2013 Last revised: 26 Nov 2017

See all articles by Jawad M. Addoum

Jawad M. Addoum

Cornell University

Alok Kumar

University of Miami - School of Business Administration

Kelvin Law

Nanyang Technological University (NTU)

Date Written: November 24, 2017

Abstract

We use a new disclosure-based approach to show that value-relevant information about publicly-traded firms is geographically distributed within the United States and the market is slow in aggregating this information. Firm fundamentals such as earnings and cash flows can be predicted using the fundamentals of other firms in economically relevant U.S. states, but sell-side equity analysts and institutional investors only partially incorporate this information in their respective earnings forecasts and holdings. Consequently, a Long−Short trading strategy that exploits the slow diffusion of geographic information earns an annual risk-adjusted return of over 9%.

Keywords: Geographic connections, information diffusion, sell-side analysts, institutional investors, earnings and return predictability

Suggested Citation

Addoum, Jawad M. and Kumar, Alok and Law, Kelvin, Slow Diffusion of State-Level Information and Return Predictability (November 24, 2017). Available at SSRN: https://ssrn.com/abstract=2343335 or http://dx.doi.org/10.2139/ssrn.2343335

Jawad M. Addoum

Cornell University ( email )

Ithaca, NY 14853
United States

Alok Kumar (Contact Author)

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

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

Kelvin Law

Nanyang Technological University (NTU) ( email )

Nanyang Business School
Singapore, 639798
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
874
Abstract Views
4,541
rank
26,341
PlumX Metrics