Detecting cross-firm momentum effects via shared analyst coverage: The role of leaders

Cross-firm momentum effects via shared analyst coverage are well-documented in developed markets, but their robustness remains unclear in emerging markets, where information diffusion is asymmetric and analyst coverage is highly concentrated. Our work revisits this effect in an environment of extreme informational frictions — the Chinese market. We reconstruct the information transmission channel within the analyst coverage network by introducing a novel weighting scheme based on strength centrality ($SC$). This measure identifies influential leader firms that command disproportionate attention from both analysts and the market. Our results demonstrate that $SC$-weighted connected-firm returns robustly predict cross-sectional stock returns, yielding significant and persistent profits even under a rigorous stock filter. This performance cannot be subsumed by strategies based on alternative weighting schemes or by explanations such as intra-industry cross-firm momentum and information discreteness. Further analysis reveals that the superiority of the $SC$-based approach stems from its ability to effectively identify firms with stronger cross-period fundamental linkages. In addition, high-$SC$ stocks are characterized by higher investor attention, more efficient information processing, lower arbitrage costs, and greater international exposures. With this evidence, we further confirm a directional spillover: cross-firm momentum effects flow exclusively from these high-$SC$ leaders to low-$SC$ laggards, and there is no reverse spillover. Our findings suggest that cross-firm momentum may be systematically underestimated in many international markets due to methodological limitations rather than economic irrelevance. The $SC$-based framework therefore offers a portable tool for global investors and researchers operating in environments with asymmetric information.