Does Time-Space Compression Affect Analysts’ Forecast Performance?

Abstract

Despite the increasing attention given to the time-space compression effect brought by improved
transportation, the economic consequences, especially those on analyst forecast performance,
have yet to be explored. Based on difference-in-difference model designs and a sample of China’s
stock markets, we find robust empirical evidence that high-speed railway connections have a
significantly positive effect on analyst forecast performance from various perspectives. We further
conduct counterfactual analyses to examine the underlying mechanism and analyse the influence
of high-speed railway connections on analysts’ stock recommendations. This study contributes to
the influencing factors for sell-side analyst performance and the effect of geographic proximity on
information efficiency.

Keywords: High-speed railway connections; Analyst forecast performance; Site visits; Information asymmetry; Stock recommendation

JEL Classification: D8, G11, G14, G24, R42