When the Tail Wags the Dog: Industry Leaders and Cross-Industry Information Diffusion
We document a strong lead-lag relationship between the stock returns of minor segment firms and pure players in industry leaders’ major segment industries. Our results suggest that this relationship is driven by representativeness bias of severely attention-constrained investors. These investors tend to trade the entire industry portfolio based on the stock performance of industry leaders; however, they are unable to discern which segments temporarily affect industry leaders’ stock price. As consequence, the interaction between investors’ inattention and representativeness bias lead to temporary mispricing of pure players. This effect is especially strong when industry leaders are more diversified and more publicly recognized. Our results are not due to alternative explanations based on economic links. By exploring two carefully-designed event studies, we show our results are also very robust in the context of structural changes.
Limited attention Category Investment Information Diffusion
Ling Cen Kalok Chan Sudipto Dasgupta Ning Gao
Department of Finance, Hong Kong University of Science and Technology, Clear water Bay, Kowloon, Hon Department of Finance, University of Manchester
国际会议
成都
英文
1-64
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）