Speed Matters : Limited Attention and Supply-Chain Information Diffusion

Using the methodology of Hou and Moskowitz (2005), we develop a new measure of the speed of information diffusion along the supply chain. Using this measure, we find evidence that information diffuses more quickly when key market participants are less subject to limited attention constraints. Specifically, we find that the speed of information diffusion from customer to supplier stock returns is more rapid when analysts dual-cover and institutional investors cross-invest in the supplier and its principal customer. We rely on exogenous shocks to attention from regional flu epidemics and S&P 500 reconstitutions to establish causality. We demonstrate that our speed measure is useful in identifying customer momentum strategies and can be of value to managers who use information in stock prices to guide corporate decisions