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Information, analysts, and stock return comovement

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  • Allaudeen Hameed
  • Randall Morck
  • Jianfeng Shen
  • Bernard Yeung

Abstract

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15833.

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Date of creation: Mar 2010
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Handle: RePEc:nbr:nberwo:15833

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Cited by:
  1. Bradley, Daniel & Yuan, Xiaojing, 2013. "Information spillovers around seasoned equity offerings," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 106-118.

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