We propose a new return predictive signal: the net peer momentum (NPM), defined as the excess return on analyst-connected firms (CF) over the focal firm. Examining its pricing effect in the Chinese equity market reveals a robust cross-sectional relationship: stocks with high NPM significantly outperform those with low NPM. Accordingly, a long-short strategy based on NPM quintiles earns over 1% per month. While both CF and NPM offer incremental pricing power, NPM exhibits a stronger effect, as it incorporates both information about peer firms and the degree of investor underreaction to such information.
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Huaigang Long
Rui Zhu
Congcong Wang
Modern Finance
Monash University
Zhejiang University of Finance and Economics
Poznań University of Economics and Business
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Long et al. (Thu,) studied this question.
www.synapsesocial.com/papers/68af56faad7bf08b1eadd27a — DOI: https://doi.org/10.61351/mf.v3i3.347