Crowded Stock Coverage

40 Pages Posted: 29 Apr 2019

See all articles by Charles Martineau

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Marius Zoican

University of Toronto - Finance Area

Date Written: April 22, 2019

Abstract

Analyst stock coverage is "crowded:" the most-covered 5% U.S. equities amount to 25% of earnings forecasts. Is information supply optimally distributed in financial markets? We build a model where limited-attention investors endogenously learn about securities. Analysts compete for scarce investor attention, providing forecasts that reduce learning costs. Coverage crowding emerges through strategic complementarity effects. For limited investor attention, analysts prefer to share a crowded space rather than "going against the wind" to cover more opaque assets. However, coverage skewness is excessive from the investors' perspective. The implications echo documented patterns: analysts cluster in large stocks with significant intangible assets.

Keywords: analyst coverage, investor attention, information processing, learning, asset pricing

JEL Classification: G11, G14, G23, D83, M41

Suggested Citation

Martineau, Charles and Zoican, Marius, Crowded Stock Coverage (April 22, 2019). 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 - Finance Area ( email )

105 St George Street
Toronto, Ontario M5S 3E6
Canada

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

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