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Investment Analysis and the Adjustment of Stock Prices to Common Information

  • Brennan, Michael J
  • Jegadeesh, Narasimhan
  • Swaminathan, Bhaskaran

In this article we are concerned with the effect of the number of investment analysts following a firm on the speed of adjustment of the firm's stock price to new information that has common effects across firms. It is found that returns on portfolios of firms that are followed by many analysts tend to lead those of firms that are followed by fewer analysts, even when the firms are of approximately the same size. Many analyst firms also tend to respond more rapidly to market returns than do few analyst firms, adjusting for firm size. This relation, however, is nonlinear, and the marginal effect of the number of analysts on the speed of price adjustment increases with the number of analysts. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 6 (1993)
Issue (Month): 4 ()
Pages: 799-824

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Handle: RePEc:oup:rfinst:v:6:y:1993:i:4:p:799-824
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Order Information: Web: http://www4.oup.co.uk/revfin/subinfo/

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  1. Lo, Andrew W & MacKinlay, A Craig, 1990. "When Are Contrarian Profits Due to Stock Market Overreaction?," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 175-205.
  2. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
  3. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  4. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  5. Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
  6. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. " Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-70, March.
  7. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  8. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  9. Brennan, Michael J & Hughes, Patricia J, 1991. " Stock Prices and the Supply of Information," Journal of Finance, American Finance Association, vol. 46(5), pages 1665-91, December.
  10. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
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