Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - When the tail wags the dog
T2 - industry leaders, limited attention,and spurious cross-industry information diffusion
AU - Cen, Ling
AU - Chan, Kalok
AU - Dasgupta, Sudipto
AU - Gao, Ning
PY - 2013/11
Y1 - 2013/11
N2 - 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.
AB - 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.
KW - limited attention
KW - category learning
KW - industry information diffusion
U2 - 10.1287/mnsc.2013.1722
DO - 10.1287/mnsc.2013.1722
M3 - Journal article
VL - 59
SP - 2566
EP - 2585
JO - Management Science
JF - Management Science
SN - 0025-1909
IS - 11
ER -