Understanding the role of aggregate analyst attention in resolving stock market uncertainty

Hou, Yunfei; Hu, Changsheng

doi:10.1016/j.frl.2023.104183

Cited by 2 publications

(1 citation statement)

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“…Moreover, a higher aggregate analyst coverage also precedes lower marketwide cash holdings and the absolute magnitude of unexpected earnings, as well as greater capital expenditures and long-term debt. For more comprehensive and detailed evidence, see [20,21]. 2), ( 4), and ( 6) include a linear time trend and lagged market-uncertainty up to five lags.…”

Section: Predictive Regression Resultsmentioning

confidence: 99%

Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

Hou,

2024

Entropy

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This paper shows that the empirical distribution of cross-sectional analyst coverage in China’s stock markets follows an exponential law in a given month from 2011 to 2020. The findings hold in both the emerging (Shanghai) and the developed market (Hong Kong). Moreover, the unique distribution parameter (i.e., mean) is directly related to the amount of market-wide information. Average analyst coverage exhibits a significant negative predictive power for stock-market uncertainty, highlighting the role of security analysts in diminishing the total uncertainty. The exponential law can be derived from the maximum entropy principle (MEP). When analysts, who are constrained by average ability in generating information (i.e., the first-order moment), strive to maximize the amount of market-wide information, this objective yields the exponential distribution. Contrary to the conventional wisdom that security analysts specialize in the generation of firm-specific information, empirical findings suggest that analysts primarily produce market-wide information for 25 countries. Nevertheless, it remains unclear why cross-sectional analyst coverage reflects market-wide information, this paper provides an entropy-based explanation.

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Section: Predictive Regression Resultsmentioning

confidence: 99%

Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

Hou,

2024

Entropy

Self Cite

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Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

Hou,

2024

Preprint

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This paper shows that the empirical distribution of cross-sectional analyst coverage in China's stock markets follows an exponential law in a given month from 2011 to 2020. The findings hold in both the emerging (Shanghai) and the developed market (Hong Kong). Moreover, the unique distribution parameter (i.e., mean) is directly related to the amount of market-wide information. Average analyst coverage exhibits a significant negative predictive power for stock-market uncertainty, highlighting the role of security analysts in diminishing the total uncertainty. The exponential law can be derived from the maximum entropy principle (MEP). When analysts, who are constrained by average ability in generating information (i.e., the first-order moment), strive to maximize the amount of market-wide information, this objective yields the exponential distribution. Contrary to the conventional wisdom that security analysts specialize in the generation of firm-specific information, empirical findings suggest that analysts primarily produce market-wide information for 25 countries. Nevertheless, it remains unclear why cross-sectional analyst coverage reflects market-wide information, this paper provides an entropy-based explanation.

show abstract

Understanding the role of aggregate analyst attention in resolving stock market uncertainty

Cited by 2 publications

References 46 publications

Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

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