NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Information, analysts, and stock return comovement

Allaudeen Hameed, Randall Morck, Jianfeng Shen, Bernard Yeung

NBER Working Paper No. 15833
Issued in March 2010
NBER Program(s):   CF

We examine information spillover as a source of stock return synchronicity, where information about highly-followed “prominent” stocks is used to price other “neglected” stocks sharing a common fundamental component. We find that stocks followed by few analysts co-move significantly with firm-specific fluctuations in the prices of highly followed stocks in the same industry, but do not observe the converse. This effect is more prominent in industries where analysts follow fewer stocks. Earnings forecast revisions for highly followed stocks cause price changes in little followed stocks, but the converse is again not observed. This is consistent with information spillover being primarily unidirectional – flowing from prominent to neglect stocks, but not vice versa. These findings also validate models of specialized information intermediaries in stock markets assisting the information capitalization process.

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Document Object Identifier (DOI): 10.3386/w15833

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