Abstract

We test the hypothesis that product market shocks to less-visible text-based industry peers can explain momentum and long-term reversals. We examine industry peer firms identified through common product text and focus on less-visible industry peers that do not share common SIC codes. Shocks to less visible peers generate economically large momentum profits, and are stronger than own-firm momentum variables. More visible traditional SIC-based peers generate only small, short-lived momentum profits. Subsequent long-term reversals only occur when the return-differential between more and less visible peers becomes large. Our findings suggest that momentum is driven by inattention to less visible horizontal peers.

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