Journal Article

Analyst Initiations of Coverage and Stock Return Synchronicity

Roulstone, Darren T., Crawford, Steven S., So, Eric C.

2012

Overview

We examine how the information produced by analysts when they initiate coverage contributes to the mix of firm-specific, industry-, and market-wide information available about the firm. We hypothesize that the first analyst to initiate coverage provides low-cost market and industry information allowing him/her to follow more stocks, whereas subsequent analysts provide firm-specific information to distinguish themselves from existing analysts. We use stock return synchronicity to measure the mix of information available about a firm, with higher synchronicity indicating more industry and market information. Coverage initiations of firms with no prior analyst coverage increase synchronicity, suggesting that analysts produce industry- and market-wide information. In contrast, analysts initiating coverage on firms with existing coverage appear to focus on producing firm-specific information as these initiations lead to reduced synchronicity. Together, our findings indicate that the type of information that analysts produce at initiation depends on the information provided by other analysts.

• Publisher: American Accounting Association
• Subject: Analysts / Analytical forecasting / Business innovation / Coefficients / Earnings forecasting / Industrial market / Information / Information economics / Information management / Investment advisors / Investment analysis / Investment decision / Investors / Kurtosis / Markets / Personal finance / Rates of return / Recommendations / Stock exchange / Stock prices / Stock returns / Stocks / Studies / Synchronicity / U.S.A