A frog in every pan: Information discreteness and the lead-lag returns puzzle

Shiyang Huang, Charles Lee, Yang Song and Hong Xiang

Journal of Financial Economics, 2022, vol. 145, issue 2, 83-102

Abstract: We re-examine the puzzling pattern of lead-lag returns among economically-linked firms. Our results show that investors consistently underreact to information from lead firms that arrives continuously, while information with the same cumulative returns arriving in discrete amounts is quickly absorbed into price. This finding holds across many different types of economic linkages, including shared-analyst-coverage. We conclude that the ǣfrog in the panǥ (FIP) momentum effect is pervasive in co-momentum settings, suggesting that information discreteness (ID) serves as a cognitive trigger that reduces investor inattention and improves inter-firm news transmission.

Keywords: Momentum spillovers; Economically linked firms; Return prediction; Investor inattention; Belief updating (search for similar items in EconPapers)
JEL-codes: G10 G14 G17 G40 G41 M20 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:2:p:83-102

DOI: 10.1016/j.jfineco.2021.10.011

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