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A frog in every pan: Information discreteness and the lead-lag returns puzzle

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  • Huang, Shiyang
  • Lee, Charles M.C.
  • Song, Yang
  • Xiang, Hong

Abstract

We re-examine the puzzling pattern of lead-lag returns among economically-linked firms. Our results show that investors consistently underreact to information from lead firms that arrives continuously, while information with the same cumulative returns arriving in discrete amounts is quickly absorbed into price. This finding holds across many different types of economic linkages, including shared-analyst-coverage. We conclude that the ǣfrog in the panǥ (FIP) momentum effect is pervasive in co-momentum settings, suggesting that information discreteness (ID) serves as a cognitive trigger that reduces investor inattention and improves inter-firm news transmission.

Suggested Citation

  • Huang, Shiyang & Lee, Charles M.C. & Song, Yang & Xiang, Hong, 2022. "A frog in every pan: Information discreteness and the lead-lag returns puzzle," Journal of Financial Economics, Elsevier, vol. 145(2), pages 83-102.
    • Handle: RePEc:eee:jfinec:v:145:y:2022:i:2:p:83-102
    DOI: 10.1016/j.jfineco.2021.10.011
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    3. Cheema, Arbab K. & Eshraghi, Arman & Wang, Qingwei, 2023. "Macroeconomic news and price synchronicity," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 390-412.
    4. Zhenjie Wang & Jiewei Zhang & Hafeez Ullah, 2023. "Exploring the Multidimensional Perspective of Retail Investors’ Attention: The Mediating Influence of Corporate Governance and Information Disclosure on Corporate Environmental Performance in China," Sustainability, MDPI, vol. 15(15), pages 1-33, August.

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    More about this item

    Keywords

    Momentum spillovers; Economically linked firms; Return prediction; Investor inattention; Belief updating;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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