Uncovering expected returns: Information in analyst coverage proxies
We show that analyst coverage proxies contain information about expected returns. We decompose analyst coverage into abnormal and expected components using a simple characteristic-based model and show that firms with abnormally high analyst coverage subsequently outperform firms with abnormally low...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Elsevier BV
2019
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| Online Access: | https://hdl.handle.net/1721.1/122365 |
| _version_ | 1811073550479523840 |
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| author | Lee, Charles M.C. So, Eric |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Lee, Charles M.C. So, Eric |
| author_sort | Lee, Charles M.C. |
| collection | MIT |
| description | We show that analyst coverage proxies contain information about expected returns. We decompose analyst coverage into abnormal and expected components using a simple characteristic-based model and show that firms with abnormally high analyst coverage subsequently outperform firms with abnormally low coverage by approximately 80 basis points per month. We also show abnormal coverage rises following exogenous shocks to underpricing and predicts improvements in firms’ fundamental performance, suggesting that return predictability stems from analysts more heavily covering underpriced stocks. Our findings highlight the usefulness of analysts’ actions in expected return estimations, and a potential inference problem when coverage proxies are used to study information asymmetry and dissemination. Keywords: Analysts; Expected returns; Anomalies; Coverage; Measurement error; Return predictability |
| first_indexed | 2024-09-23T09:34:44Z |
| format | Article |
| id | mit-1721.1/122365 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T09:34:44Z |
| publishDate | 2019 |
| publisher | Elsevier BV |
| record_format | dspace |
| spelling | mit-1721.1/1223652022-09-26T12:23:00Z Uncovering expected returns: Information in analyst coverage proxies Lee, Charles M.C. So, Eric Sloan School of Management We show that analyst coverage proxies contain information about expected returns. We decompose analyst coverage into abnormal and expected components using a simple characteristic-based model and show that firms with abnormally high analyst coverage subsequently outperform firms with abnormally low coverage by approximately 80 basis points per month. We also show abnormal coverage rises following exogenous shocks to underpricing and predicts improvements in firms’ fundamental performance, suggesting that return predictability stems from analysts more heavily covering underpriced stocks. Our findings highlight the usefulness of analysts’ actions in expected return estimations, and a potential inference problem when coverage proxies are used to study information asymmetry and dissemination. Keywords: Analysts; Expected returns; Anomalies; Coverage; Measurement error; Return predictability 2019-10-03T19:13:55Z 2019-10-03T19:13:55Z 2017-05 2016-05 2019-09-27T13:32:14Z Article http://purl.org/eprint/type/JournalArticle 0304-405X https://hdl.handle.net/1721.1/122365 Lee, Charles M. C. and Eric C. So. "Uncovering expected returns: Information in analyst coverage proxies." Journal of Financial Economics 124, 2 (May 2017): 331-348 © 2017 Elsevier en http://dx.doi.org/10.1016/j.jfineco.2017.01.007 Journal of Financial Economics Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Elsevier BV Prof. So via Shikha Sharma |
| spellingShingle | Lee, Charles M.C. So, Eric Uncovering expected returns: Information in analyst coverage proxies |
| title | Uncovering expected returns: Information in analyst coverage proxies |
| title_full | Uncovering expected returns: Information in analyst coverage proxies |
| title_fullStr | Uncovering expected returns: Information in analyst coverage proxies |
| title_full_unstemmed | Uncovering expected returns: Information in analyst coverage proxies |
| title_short | Uncovering expected returns: Information in analyst coverage proxies |
| title_sort | uncovering expected returns information in analyst coverage proxies |
| url | https://hdl.handle.net/1721.1/122365 |
| work_keys_str_mv | AT leecharlesmc uncoveringexpectedreturnsinformationinanalystcoverageproxies AT soeric uncoveringexpectedreturnsinformationinanalystcoverageproxies |