The Relationship between Firm-Specific Return Variation and Price Informativeness: Some Cross-Sectional Evidence
2017
The progressive removal of short-selling constraints in the Chinese
stock market provides us with a natural experiment to investigate
the relationship between firm-specific return variation (FSRV) and
price informativeness. Based on the empirical finding that idiosyncratic
volatility is a satisfied proxy for FSRV when the information environment
for individual firms improves, we mainly find that the FSRV is negatively
related to price informativeness. This negative relationship is robust
to alternative model specifications, alternative proxies for price
informativeness, and alternative estimation windows. Generally speaking,
our results complement the extant literature on the mixed relationships
between FSRV and price informativeness by providing cross-sectional
evidence.
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