Complicated firms

• 成果类型: Article
• 署名作者: Cohen, Lauren; Lou, Dong
• 署名单位: Harvard University; National Bureau of Economic Research; University of London; London School Economics & Political Science
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.08.006
• 发表日期: 2012
• 页码: 383-400
• 关键词: Complicated processing; Return predictability; Standalone; Conglomerate; Market frictions

摘要

We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Specifically, a simple portfolio strategy that takes advantage of this straightforward vs. complicated information processing classification yields returns of 118 basis points per month before transaction costs. Consistent with processing complexity driving the return relation, we further show that the more complicated the firm, the more pronounced the return predictability. In addition, we find that sell-side analysts are subject to these same information processing constraints, as their forecast revisions of easy-to-analyze firms predict their future revisions of more complicated firms. (C) 2011 Elsevier B.V. All rights reserved.