[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.]

Journal Article Industry Information Diffusion and the Lead-lag Effect in Stock Returns Get access Kewei Hou Kewei Hou Department of Finance, Fisher College of Business, The Ohio State University Address correspondence to Kewei Hou, Department of Finance, Fisher College of Business, Ohio State University, 2100 Neil Avenue, Columbus, OH 43210, or e-mail: [email protected] Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 20, Issue 4, July 2007, Pages 1113–1138, https://doi.org/10.1093/revfin/hhm003 Published: 22 January 2007