Information, analysts, and stock return comovement
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.
We are grateful for very helpful comments from Mark Chen, Anzhela Knyazeva, Diana Knyazeva, Laura Veldkamp, participants at the 2009 Financial Intermediation Research Society meeting and the 2009 Financial Integrity Research Network Research Day in Finance, and finance seminar participants at the National University of Singapore, Rotterdam School of Management, University of New South Wales and University of Melbourne. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Allaudeen Hameed & Randall Morck & Jianfeng Shen & Bernard Yeung, 2015. "Information, Analysts, and Stock Return Comovement," Review of Financial Studies, vol 28(11), pages 3153-3187. citation courtesy of