Analyst Site Visits, Limited Investor Attention and Lead-Lag Effect in China

Abstract

Due to limited attention, investors may react sluggishly to complex and implicit information, such as shocks transferred across fundamental linkages. We explore how efficiently China' s stock market incorporates fundamental linkage information into stock prices. Using shared analyst coverage as a proxy for fundamental linkage, we find a significant lead-lag effect among fundamentally connected stocks at weekly frequency, but not at the monthly frequency. Furthermore, we find that analyst site visits alleviate limited investor attention by reminding investors of stocks' correlation in fundamentals, weakening the lead-lag effects. We provide evidence that during their site visit to a firm, analysts can obtain information related to other connected firms, and such information improves analysts' forecast accuracy for these connected firms. The market also reacts more strongly to such analysts' forecast revisions.

Keywords: Limited Attention, Lead-lag Effect, Shared Analyst Coverage, Analyst Site Visits