Sell-Side Analyst Research and Stock Comovement

Posted: 5 Oct 2014

See all articles by Volkan Muslu

Volkan Muslu

C.T. Bauer College of Business University of Houston

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management

Yexiao Xu

University of Texas at Dallas - School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2014

Abstract

We document that a stock's price around a recommendation or forecast covaries with prices of other stocks the issuing analyst covers. The effect of shared analyst coverage on stock price comovement extends beyond analyst activity days. A stock's daily returns covary with the returns of other stocks with which it shares analyst coverage. These links between stock price comovement and shared analyst coverage are consistent with the coverage-specific information we find in earnings forecasts; analysts who cover both stocks in a pair expect future earnings of the stocks to be more highly correlated than do analysts who cover only one stock from the pair. Collectively, our evidence indicates that analyst research produces coverage-specific spillovers that raise price comovement among stocks that share analyst coverage. The strength of these spillovers is comparable to spillovers from broad industry and market information in analyst research.

Keywords: Analyst coverage, Return correlation, Comovement, Spillover

JEL Classification: G14, G24

Suggested Citation

Muslu, Volkan and Rebello, Michael J. and Xu, Yexiao, Sell-Side Analyst Research and Stock Comovement (September 1, 2014). Journal of Accounting Research, Vol. 52, No. 4, 2014. Available at SSRN: https://ssrn.com/abstract=2505055

Volkan Muslu (Contact Author)

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Yexiao Xu

University of Texas at Dallas - School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972-883-6703 (Phone)

HOME PAGE: http://www.utdallas.edu/~yexiaoxu

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