Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Transparency, price informativeness, and stock return synchronicity
T2 - theory and evidence
AU - Dasgupta, Sudipto
PY - 2010/10
Y1 - 2010/10
N2 - This paper argues that, contrary to the conventional wisdom, stock return synchronicity (or R2) can increase when transparency improves. In a simple model, we show that, in more transparent environments, stock prices should be more informative about future events. Consequently, when the events actually happen in the future, there should be less “surprise” (i.e., less newinformation is impounded into the stock price). Thus a more informative stock price today means higher return synchronicity in the future. We find empiricalsupport for our theoretical predictions in 3 settings: namely, firm age, seasoned equity offerings (SEOs), and listing of American Depositary Receipts (ADRs).
AB - This paper argues that, contrary to the conventional wisdom, stock return synchronicity (or R2) can increase when transparency improves. In a simple model, we show that, in more transparent environments, stock prices should be more informative about future events. Consequently, when the events actually happen in the future, there should be less “surprise” (i.e., less newinformation is impounded into the stock price). Thus a more informative stock price today means higher return synchronicity in the future. We find empiricalsupport for our theoretical predictions in 3 settings: namely, firm age, seasoned equity offerings (SEOs), and listing of American Depositary Receipts (ADRs).
U2 - 10.1017/S0022109010000505
DO - 10.1017/S0022109010000505
M3 - Journal article
VL - 45
SP - 1189
EP - 1220
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
IS - 5
ER -