Geographic Lead-Lag Effects

We document lead-lag effects on returns between coheadquartered firms in different sectors. Geographic lead-lags yield risk-adjusted returns of 5 %–6 % annually, half that observed for industry lead-lag effects. Whereas industry lead-lag effects are strongest among small, thinly traded stocks with low analyst coverage, geographic lead-lags are unrelated to these proxies for investor scrutiny. We propose an explanation linked to the structure of the investment analyst business, which is organized by sector, not by geographic region. Our findings suggest that in lead-lag relationships, analysts common to both leading and lagging firms are important, regardless of the number of analysts covering each individually.