Crowded Analyst Coverage

44 Pages Posted: 29 Apr 2019 Last revised: 21 Oct 2019

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 20, 2019

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 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.

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 (October 20, 2019). Paris December 2019 Finance Meeting . 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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