Assignment of Stock Market Coverage

Briana Chang, Harrison Hong

NBER Working Paper No. 23115
Issued in January 2017
NBER Program(s):Asset Pricing, Corporate Finance

Price efficiency plays an important role in financial markets. Firms influence it, particularly when they issue public equity. They can hire a reputable underwriter with a star analyst to generate public signals about profits, thereby reducing uncertainty and increasing valuations. We develop an assignment model of this labor market. The value of a match between firms, that differ in multiple dimensions, and agents, that differ in precision, is endogenously generated from a stock-market equilibrium. We characterize the multidimensional-to-one assignment and obtain predictions. Extensions allow firms to value efficiency for other reasons and apply to other labor markets like media-or-investor relations.

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Document Object Identifier (DOI): 10.3386/w23115

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