Investor attention and the cross-section of analyst coverage

52 Pages Posted: 29 Apr 2019 Last revised: 2 Oct 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: October 1, 2020

Abstract

Investor attention drives analyst coverage. We find that, between 2012-2017, institutional investor attention explains 21.39% of the cross-sectional variation in analyst coverage, second only to market capitalization (22.09%). We build a model where limited investor attention drives information supply. Analysts compete for scarce investor attention to maximize volume for brokerage houses. In equilibrium, analysts cluster in riskier stocks, for which information is most valuable. However, relaxing investors' attention constraints can reinforce coordination motives for analysts and lead to even higher clustering. The results mirror "crowded" coverage in the U.S., where the most-covered 5% equities amount to 25% of earnings forecasts.

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

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

Suggested Citation

Martineau, Charles and Zoican, Marius, Investor attention and the cross-section of analyst coverage (October 1, 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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