Analyst coverage network and stock return comovement in emerging markets

- Pairs of stocks connected by common analyst coverage exhibit more comovement and excess comovement.
- Pairs of stocks easily traded by foreign investors are more affected by shared coverage.
- International analysts are the main source of excess comovement between pairs of stocks in different countries.
- MSCI LATAM index is used as exogenous instrument to reduce the endogeneity concerns regarding the network formation.

This paper shows that analyst coverage networks (ACN) play an important role in explaining stock return commonalities across Latin American stocks. First, pairs of stocks connected by analysts exhibit higher comovement and excess comovement. Second, firms easily traded by foreign investors are more strongly affected by common coverage. Third, international analysts are an important source of across-country excess comovement. Finally, by creating the network at the brokerage house level and exploiting exogenous changes in ACN around the MSCI LATAM Index reviews, this study addresses endogeneity concerns related to the effect of ACN on commonalities.