Double edged coverage? The impact of the analyst coverage network on stock price volatility

Abstract

Given that investors exhibit greater sensitivity to bad price volatility compared to positive volatility, this paper investigates how securities analysts asymmetrically influence both volatility types. By constructing an analyst coverage network, we find that brokerage analysts enhance good volatility through effective stock identification but exacerbate bad volatility due to their structural hole advantage. In contrast, clique analysts exhibit herding effects that mitigate bad volatility while reducing their stock identification ability, diminishing good volatility. Additionally, star analysts show similar mechanisms. For firms with poor information transparency, brokerage analysts rely more on trading volume for stock identification, which strengthens good volatility but also amplifies losses. This paper extends the research on analyst coverage and also provides practical implications for analyst behavior regulation in the capital market.