Sticky Expectations and Cross‐Firm Return Predictability

Zilin Chen, Hui Ding and Fuwei Jiang

Journal of Business Finance & Accounting, 2025, vol. 52, issue 5, 2278-2298

Abstract: Previous empirical studies document a striking cross‐firm return predictability among firms connected through economic links. This study reveals that this cross‐firm return predictability is attributable to analysts' sticky expectations. Notably, the return predictability is more pronounced for focal firms covered by analysts with stickier expectations, particularly during earnings announcement days. Furthermore, this effect remains robust against alternative explanations and is evident across different sub‐samples, alternative measures of expectation stickiness, and various economic linkages. Our findings highlight a novel insight that analysts' sticky expectations serve as an important factor driving investors' underreaction to the valuable information from economically linked firms.

Date: 2025
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https://doi.org/10.1111/jbfa.12876

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:52:y:2025:i:5:p:2278-2298

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Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

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