Investment Analysis, Price Formation and Neglected Firms: Does Real Estate Make a Difference?

Abstract

This paper examines the relation between information‐gathering activities and price formation when the gatherers are small in number. Two measures of information asymmetry are estimated to test the cross‐sectional effect of investment‐analyst attention on price formation. The analysis contrasts firms that invest predominately in real estate assets to those that do not. Unlike most studies of the competition among information gatherers, the results in this paper indicate that liquidity worsens with increasing investment‐analyst attention. These findings provide further evidence that information deficiency is an important economic trait, although real estate securities may suffer less from neglect than from asset‐specific information asymmetry.