Cross-firm information in analyst reports

Abstract

This study explores the significance of the cross-firm information in analyst reports. When financial analysts publish reports on a stock (termed the highlighted stock herein), they occasionally comment on related stocks that may be affected by the subject matter and analysis of the report. The analyses reveal that when financial analysts positively (negatively) revise their target prices while mentioning the related stock, they subsequently positively (negatively) revise the target prices of the related stock with a 2–10 day lag. Furthermore, revisions to the target prices of the highlighted stock predict the subsequent returns of related stocks. Finally, the predictability of the returns of related stocks is attributed to the delayed revision to the analysts' target prices for the related stocks. These results affirm the utility of cross-firm information and its gradual incorporation into analysts’ estimates and share prices of related firms.