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Analyst Coverage, Information, and Bubbles

Published online by Cambridge University Press:  29 November 2013

Sandro C. Andrade ,
Jiangze Bian  and
Timothy R. Burch
Sandro C. Andrade
Affiliation:
[email protected], School of Business Administration, University of Miami, PO Box 248094, Coral Gables, FL 33124
Jiangze Bian*
Affiliation:
[email protected], School of Banking and Finance and Research Center for Applied Finance, University of International Business and Economics, 908 Boxue Building, #10, HuixinDongjie, Beijing 100029, China.
Timothy R. Burch
Affiliation:
[email protected], School of Business Administration, University of Miami, PO Box 248094, Coral Gables, FL 33124
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Abstract

We examine the 2007 stock market bubble in China. Using multiple measures of bubble intensity for each stock, we find significantly smaller bubbles in stocks for which there is greater analyst coverage. We further show that 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 may mitigate bubbles is by coordinating investors’ beliefs and thus reducing its dispersion. Stock turnover provides further evidence consistent with this particular information mechanism.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 5 , October 2013 , pp. 1573 - 1605
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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