When the tail wags the dog:industry leaders, limited attention,and spurious cross-industry information diffusion

Cen, Ling and Chan, Kalok and Dasgupta, Sudipto and Gao, Ning (2013) When the tail wags the dog:industry leaders, limited attention,and spurious cross-industry information diffusion. Management Science, 59 (11). 2566–2585. ISSN 0025-1909

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Abstract

Within an industry, stock returns of larger firms lead those of smaller firms, suggesting an intraindustry information diffusion process. Most industry leaders, however, have business segments in other industries (henceforth, minor-segment industries), whereas most small firms are pure players operating in one industry only. If investors cannot filter out the irrelevant information from the leaders' minor segments, the pure players will be mispriced due to spurious cross-industry information diffusion (SCIID). Consistent with the SCIID hypothesis, we document both a strong contemporaneous and a lead–lag relation in stock returns between firms from industry leaders' minor-segment industries and pure players in the industry leaders' major-segment industry. Our results are not due to potential missing common factors or economic relationships between pure players and firms in the minor-segment industries.

Item Type: Journal Article
Journal or Publication Title: Management Science
Uncontrolled Keywords: /dk/atira/pure/subjectarea/asjc/1800/1803
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 74778
Deposited By: ep_importer_pure
Deposited On: 31 Jul 2015 08:08
Refereed?: Yes
Published?: Published
Last Modified: 01 Jan 2020 09:18
URI: https://eprints.lancs.ac.uk/id/eprint/74778

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