Stock Price Synchronicity and Analyst Coverage in Emerging Markets

40 Pages Posted: 4 Feb 2003

See all articles by Allaudeen Hameed

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Kalok Chan

CUHK Business School

Date Written: December 2002

Abstract

This paper examines the relationship between the stock price synchronicity and analyst activity in emerging markets. Contrary to conventional wisdom that suggests that security analysts specialize in the production of firm-specific information, we find that the security analysts predominantly produce market-wide information. Using the R-square statistics of the market model as a measure of the synchronicity of stock price movements, we find that more analyst coverage leads to an increase in stock price synchronicity. Furthermore, after controlling for the influence of firm size on the lead-lag relation, we find that returns on high analyst-following portfolio lead returns on low analyst-following portfolio more than vice versa. We also find that the aggregate changes in the earnings forecast of high analyst-following portfolio affect the aggregate returns of the portfolio itself as well as the the low analyst-following portfolio while the aggregate changes in the earnings forecasts of low analyst-following portfolio have no predictive ability. Finally, when the forecast dispersion is high, the effect of analyst coverage on stock price synchronicity is reduced.

Keywords: Price Synchronicity, Security Analyst, Emerging Markets

JEL Classification: G14, G15

Suggested Citation

Hameed, Allaudeen and Chan, Kalok, Stock Price Synchronicity and Analyst Coverage in Emerging Markets (December 2002). Available at SSRN: https://ssrn.com/abstract=362900 or http://dx.doi.org/10.2139/ssrn.362900

Allaudeen Hameed (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu.sg/faculty-details/?profId=1

Kalok Chan

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

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