Crowded Analyst Coverage

46 Pages Posted: 29 Apr 2019 Last revised: 23 Mar 2020

See all articles by Charles Martineau

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Marius Zoican

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Date Written: March 19, 2020

Abstract

Analyst stock coverage is "crowded:'' the most-covered 5% U.S. equities amount to 25% of earnings forecasts. Coverage clustering persists after controlling for factors commonly associated with analyst following, and correlates with investors' demand for information. Is information supply optimally distributed in markets? We build a model where analysts compete for scarce investor attention, providing forecasts that enhance investor learning. If clearing prices are not perfectly revealing, strategic complementarity effects dominate: analysts prefer to share a crowded space rather than "going against the wind'' to cover relatively neglected assets. As investors' learning capacity increases, analyst coverage clustering is always excessive.

Keywords: analyst coverage, rational inattention, career concerns, information processing, learning

JEL Classification: G11, G24, G40, D83, M41

Suggested Citation

Martineau, Charles and Zoican, Marius, Crowded Analyst Coverage (March 19, 2020). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC. Available at SSRN: https://ssrn.com/abstract=3376162 or http://dx.doi.org/10.2139/ssrn.3376162

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

Marius Zoican (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.org

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