TY - JOUR
T1 - Search-based peer firms
T2 - Aggregating investor perceptions through internet co-searches
AU - Lee, Charles M.C.
AU - Ma, Paul
AU - Wang, Charles C.Y.
N1 - Publisher Copyright:
© 2015 Elsevier B.V.
PY - 2015/5/1
Y1 - 2015/5/1
N2 - Applying a "co-search" algorithm to Internet traffic at the SEC's EDGAR website, we develop a novel method for identifying economically related peer firms and for measuring their relative importance. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search-Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms' out-of-sample: (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification, and are more dynamic, pliable, and concentrated. We also show that co-search intensity captures the degree of similarity between firms. Our results highlight the potential of the collective wisdom of investors - extracted from co-search patterns - in addressing long-standing benchmarking problems in finance.
AB - Applying a "co-search" algorithm to Internet traffic at the SEC's EDGAR website, we develop a novel method for identifying economically related peer firms and for measuring their relative importance. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search-Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms' out-of-sample: (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification, and are more dynamic, pliable, and concentrated. We also show that co-search intensity captures the degree of similarity between firms. Our results highlight the potential of the collective wisdom of investors - extracted from co-search patterns - in addressing long-standing benchmarking problems in finance.
KW - Co-search
KW - EDGAR search traffic
KW - Industry classification
KW - Peer firm
KW - Revealed preference
UR - http://www.scopus.com/inward/record.url?scp=84928823917&partnerID=8YFLogxK
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U2 - 10.1016/j.jfineco.2015.02.003
DO - 10.1016/j.jfineco.2015.02.003
M3 - Article
AN - SCOPUS:84928823917
SN - 0304-405X
VL - 116
SP - 410
EP - 431
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -