Analyst coverage, bubbles, and information

(with Sandro Andrade and Jiangze Bian)


Journal of Financial and Quantitative Analysis
Vol. 48:5 (October 2013), pp. 1573-1605


This paper uses the unique setting of the 2007 stock market bubble in China to examine whether information dissemination mitigates bubbles. Using multiple measures of bubble intensity for each stock, we find significantly smaller bubbles in stocks with greater analyst coverage. The abating effect of analyst coverage on bubble intensity is weaker when there is greater disagreement among analysts. This suggests that, in line with resale option theories of bubbles, one channel through which analyst coverage mitigates bubbles is by coordinating investors' beliefs. Consistent with this particular information mechanism, stock turnover is negatively correlated with analyst coverage, and the abating effect of analyst coverage on stock turnover is weaker when there is more disagreement among analysts.

[This is a revised version of the paper "Does information dissemination mitigate bubbles," which won first prize at the 8th Annual Chinese Finance Meeting (Shandong University)].

Click here for the paper

Click here for the online appendix

If you have any problems, please email me at tburch@miami.edu


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