Cross-Firm Information in Analyst Reports
58 Pages Posted: 30 Aug 2024
Abstract
This study explores the significance of the cross-firm information in analyst reports. When financial analysts publish reports on a stock (termed the highlighted stock herein), they occasionally comment on related stocks that may be impacted by the report’s subject matter and analysis. The analyses reveal that when financial analysts positively (negatively) revise their target prices while mentioning the related stock, there is a subsequent positive (negative) revision to the target prices of the related stock with a 2–10-day lag. Furthermore, revisions to the target prices of the highlighted stock predict the subsequent returns of related stocks. Finally, the predictability of the returns of related stocks is attributed to the delayed revision to the analysts’ target prices. These results affirm the utility of cross-firm information and its gradual incorporation into analysts’ estimates and share prices of related firms.
Keywords: financial analyst, cross-firm information, target price, information diffusion
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