Analysts disproportionately cover companies whose fundamentals correlate with industry peers. These bellwether companies have significant stock-price effects on companies with little or no analyst coverage in the same industry.
The paper offers two propositions. First, companies whose fundamentals resemble those of other companies in their industry attract more analyst coverage. Second, earnings estimates for companies with large analyst followings influence the returns of companies with similar fundamentals but sparse information because of limited coverage.
These ideas have a significant impact on return and volatility characteristics.
Abstract author — Paul R. Rossi, CFA
