How Do Sell-Side Analysts Allocate Attention in China's Stock Market?

This paper shows that the empirical distribution of cross-sectional analyst coverage in China’s stock market maintains an exponential pattern for each year and each month from 2011 to 2020. Moreover, the parameter λ of coverage distribution is directly related to market risk premium. Concretely, market-level analyst coverage, denoted by λ−1, has a strong negative predictive power for market excess returns while controlling for common forecasting variables. Our findings highlight the overall distribution structure of analysts’attention allocation and its role in predicting market excess returns, as well as the potential inference problem when using coverage proxies to study firm-specific information environments