Journal
REVIEW OF FINANCIAL STUDIES
Volume 20, Issue 4, Pages 1113-1138Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/revfin/hhm003
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I argue that the slow diffusion of industry information is a leading cause of the lead-lag effect in stock returns. I find that the lead-lag effect between big firms and small firms is predominantly an intra-industry phenomenon. Moreover, this effect is driven by sluggish adjustment to negative information, and is robust to alternative determinants of the lead-lag effect. Small, less competitive and neglected industries experience a more pronounced lead-lag effect. The lead-lag effect is related to the post-announcement drift of small firms following the earnings releases of big firms within the industry.
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