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The gap between you and your peers matters: The net peer momentum effect in China

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Listed:
  • Huaigang Long

  • Rui Zhu

  • Congcong Wang

  • Zhongwei Yao

  • Adam Zaremba

Abstract

We propose a new return predictive signal: the net peer momentum (NPM), defined as the excess return on analyst-connected firms (CF) over the focal firm. Examining its pricing effect in the Chinese equity market reveals a robust cross-sectional relationship: stocks with high NPM significantly outperform those with low NPM. Accordingly, a long-short strategy based on NPM quintiles earns over 1% per month. While both CF and NPM offer incremental pricing power, NPM exhibits a stronger effect, as it incorporates both information about peer firms and the degree of investor underreaction to such information.

Suggested Citation

  • Huaigang Long & Rui Zhu & Congcong Wang & Zhongwei Yao & Adam Zaremba, 2025. "The gap between you and your peers matters: The net peer momentum effect in China," Modern Finance, Modern Finance Institute, vol. 3(3), pages 40-53.
    • Handle: RePEc:bdy:modfin:v:3:y:2025:i:3:p:40-53:id:347
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    References listed on IDEAS

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    1. Kewei Hou, 2007. "Industry Information Diffusion and the Lead-lag Effect in Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1113-1138.
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    3. Ali, Usman & Hirshleifer, David, 2020. "Shared analyst coverage: Unifying momentum spillover effects," Journal of Financial Economics, Elsevier, vol. 136(3), pages 649-675.
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