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Private Information and Analyst Coverage: Evidence from Firm Survey Data

October 19, 2018
Yoshiyuki Nakazono*1
Maiko Koga*2
Tomohiro Sugo*3


Using a unique panel of survey data on Japanese firms, we provide evidence that firms hold private information revealed in the survey that has predictive power for stock returns. Specifically, we find that the information contained in firms' industry demand forecasts can predict the stock returns of the sector and individual firms up to the next five years. We also uncover the origin of the information advantage of firms, by examining its relation to analyst coverage. To examine the source of the information asymmetry this result implies, we focus on the extent to which firms are covered by securities analysts and find that such information asymmetry arises only in the case of firms not sufficiently covered by analysts.

JEL Classification
D84; G23

analyst coverage; efficient market hypothesis; return predictability; information advantage; private information; survey data

We thank the Economic and Social Research Institute of the Cabinet Office of Japan for providing us with microdata from the "Annual Survey of Corporate Behavior." We also thank Kosuke Aoki, Hibiki Ichiue, Sohei Kaihatsu, Toshitaka Sekine, Yosuke Uno, Toshinao Yoshiba, and other BOJ staff members for their comments and suggestions. The views expressed in this paper do not necessarily reflect those of the Bank of Japan. Permission for using microdata is given under the agreement between ESRI and the Bank of Japan. The work of this paper has been conducted while Nakazono was working as an adviser at the Research and Statistics Department of the Bank of Japan. Nakazono acknowledges financial support from JSPS KAKENHI Grant Number 15K17024 and the Yokohama Academic Foundation.

  1. *1Yokohama City University
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  2. *2Research and Statistics Department, Bank of Japan
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  3. *3Research and Statistics Department, Bank of Japan
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