Using abnormal analyst coverage to unlock new evidence on stock price crash risk

Abstract

We employ a characteristic-based model to decompose total analyst coverage into abnormal and expected components and show that abnormal coverage contains valuable information about firm-level ex ante crash risk (proxied by implied volatility smirk from options data). Specifically, one standard deviation increase in unexpected or abnormal coverage is associated with a 5.5 percent decrease in the ex ante crash risk. The abnormal coverage signal is more useful for firms with a more transparent information environment, proxied by lower probability of informed trading, lower financial opacity, and more comparable financial statements. Moreover, the abnormal coverage effect is stronger for firms followed by analysts who issue more accurate and less dispersed forecasts. Collectively, these results suggest that options market investors utilise abnormal coverage to identify and assess crash risk of mispriced firms.

Analysis on Relationship between Accurate Poverty Alleviation and Stock Price Collapse Risk from the Perspective of Information Disclosure

“…e data source is China Stock Market and Accounting Research (CSMAR) Database. e results are similar to the statistics of domestic researchers like Dong et al [27] and Liang et al [28] but obviously smaller than the statistics obtained by Kim et al [6] and Chowdhury et al [29] from foreign stock market data. Hence, Chinese stock market has a smaller SPCR than foreign stock markets.…”

Micro-, meso- and macro-level determinants of stock price crash risk: a systematic survey of literature

“…The extant literature reveals that a lack of transparency in financial information contributes to stock price crash risk (Kim and Zhang, 2016, Chowdhury et al. , 2021; Xu et al.…”

“…, 2013). The literature also suggests that inconsistent analyst coverage (Chowdhury et al. , 2021; Kim and Zhang, 2016) and accounting conservatism (Kim and Zhang, 2016) are associated with higher stock price crash risk.…”

“…The extant literature reveals that a lack of transparency in financial information contributes to stock price crash risk Zhang, 2016, Chowdhury et al, 2021;Xu et al, 2013). The literature also suggests that inconsistent analyst coverage (Chowdhury et al, 2021;Kim and Zhang, 2016) and accounting conservatism (Kim and Zhang, 2016) are associated with higher stock price crash risk. On the other hand, auditors' industry specialization (Feng et al, 2019) and earning transparency (Hung amd Qiao, 2017;Hsu et al, 2018) lower stock price crash risk.…”

Does stock market liberalisation restrain corporate financialisation?

“…Moreover, as discussed in the hypothesis development part of the paper, financial analysts will have more coverage on the pilot firms listed in the CHSC program, which further enhances external monitoring (Chowdhury et al, 2021) and curbs corporate financialisation behaviours. Following Foucault and Frésard (2012), we use the number of analysts following the firm in the current year to measure analysts' coverage.…”