Working Paper: NBER ID: w25201
Authors: Usman Ali; David Hirshleifer
Abstract: Identifying stock connections by shared analyst coverage, we find that a connected-stock (CS) momentum factor generates a monthly alpha of 1.68% (t = 9.67). In spanning regressions, the alphas of industry, geographic, customer, customer/supplier industry, single- to multi-segment, and technology momentum factors are insignificant/negative after controlling for CS momentum. Similar results hold in cross-sectional regressions and in developed international markets. Sell-side analysts incorporate news about linked stocks sluggishly. These effects are stronger for complex and indirect linkages. These results indicate that previously documented momentum spillover effects represent a unified phenomenon that is captured by shared analyst coverage.
Keywords: analyst coverage; momentum; spillover effects
JEL Codes: D03; G02; G11; G12; G14; G4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| analyst coverage (G24) | momentum spillover effects (F69) |
| connected stock (CS) returns (G17) | future stock returns (G17) |
| analyst coverage (G24) | speed of information dissemination (G14) |
| CS returns (Y10) | future returns (G17) |
| analyst-driven sluggishness (D79) | lead-lag relationships between connected stocks (G17) |
| number of connections and degree centrality (D85) | sluggishness in information processing (D83) |
| CS lagged returns (G19) | future returns (G17) |