Return Momentum Spillover Effect Among Analyst-covered Firms----Evidence From China’s A-share Market

Finance research has long been devoted to the topic of revealing the microstructure and inner mechanism of markets.Early financial research mainly studied the relationship between the expected return rate of assets and risky assets in the securities market from the perspective of assets,but ignored the impact of the correlation between enterprises and the limited rationality of investors on asset returns.In fact,due to a variety of basic connections between listed companies,such as supplier-customer chain association,product similarity,technology similarity,the same industry and other enterprise association relations,the securities market has gradually evolved into a complex and dynamically changing association network.At the same time,according to the classical theory of behavioral finance,the limited attention theory,investors in the market have the characteristic of bounded rationality.Therefore,ignoring the fundamental correlation or similarity between enterprises and the impact of investors’ limited rationality on asset price fluctuations will not be able to make a comprehensive analysis of the real asset price operation mechanism.Recent financial research show that momentum spillover effects occur among firms with similar fundamentals.In the US stock market,we find that there are momentum spillover effects on the returns of companies belonging to the same industry,companies with similar products,companies with supplier-customer chain connection,companies with similar technology,and companies headquartered in the same geographical location.Ali and Hirshleifer(2020)found that there is a significant momentum spillover effect among analyst-connected firms,and this momentum can well explain the other momentum spillover effects mentioned above.In Chinese security market,financial analysts conduct in-depth analysis and research based on market information,make profit forecasts on the intrinsic value of listed companies,and give specific investment suggestions.They publish research reports and make corresponding investment recommendations to investors.Financial analysts’ forecasts undoubtedly affect investors’ decisions and ultimately affect asset pricing.Therefore,it is questioned whether the same law also exists in Chinese security market: does the lead and lag effect of analyst correlation also exist among related enterprises? If so,what is the potential mechanism of the influence of analyst correlation?Based on shared analyst coverage,we systematically examine and analyze the significance,forecast cycle and potential mechanism of common-analyst momentum in China.We find that the common-analyst momentum factor in the Chinese stock market shows the same rule as that in the American stock market,and has significant forecasting ability at the monthly level.Further research on the common-analyst momentum shows that the common-analyst momentum factor in the Chinese stock market can predict the future stock returns and fundamental changes of the target company,and the long-short strategy can generate the maximum monthly excess return of 1.16%(13.92% on an annualized basis).According to the mechanism test,the fundamentals of the analyst connected peers are similar,and the common-analyst momentum is derived from the slow spread of relevant basic information among the peers.Further examination finds that common-analyst momentum is more significant when focus companies are forecasted by more analysts or on earnings announcement day.This paper is a supplement to the existing cross-asset momentum research on the A-share market,which is helpful to improve the information diffusion efficiency of Chinese A-share market,evaluate the information intermediary role of Chinese financial analysts,and help to understand the rules of Chinese stock market and improve the effectiveness of the capital market.