This paper investigates whether excess
analyst coverage can transmit information about future stock return and firm performance.
We find that excess analyst coverage is positively correlated with future stock
return, return on total assets and unexpected earnings of firms. Meanwhile, the
abnormal return of the arbitrage strategy based on excess analyst coverage
comes from its predictive power on future firm performance. Moreover, if excess
analyst coverage is caused by good news, then higher excess coverage indicates
that the firm will perform much better than the marketís expectation, and the
stock return is also much higher. Our findings offer further evidence on the
information delivery role of analysts and help investors construct more
effective investment portfolios.
JEL classification numbers: G11, G12, G14
Keywords: Excess analyst coverage, stock return, firm performance, information