À繫¿¬±¸ Á¦ ±Ç È£ (2010³â 5¿ù)
Asian Review of Financial Research, Vol., No..
pp.1579~1612
pp.1579~1612
The Effect of Disclosure Quality on Market Mispricing : Evidence from Derivative Related Loss Announcement
Jaiho Chung Assistant Professor Korea University
Hyungseok Kim Ph.D. Candidate Korea University
Woojin Kim Assistant Professor Korea University
Yong Keun Yoo Associate Professor Korea University
While previous studies suggest that the higher level of disclosure leads to a more efficient stock market, it is unclear whether a simple increase in quantity of disclosure, regardless of its quality, guarantees a better price discovery. This paper examines the separated effect of disclosure quality on how well newly disclosed information is incorporated into stock prices by analyzing stock returns around the derivative related loss announcements in Korean stock market. To properly price the losses from financial derivatives, investors need to differentiate ¡®over-hedged¡¯ firms from ¡®non-over-hedged¡¯ firms. This is because only the derivative related losses of ¡®over-hedged¡¯ firms actually lead to net losses even after being offset by gains from underlying foreign currency denominated assets. By analyzing stock returns around 131 derivative related loss announcements during March 2008 and June 2009 in Korean stock market, we find that investors misprice derivative related losses of ¡®non-over-hedged¡¯ firms when additional information to identify ¡®non-over-hedged¡¯ firms is not available. This result indicates that newly disclosed information about derivative related losses without supporting information induces investors to misprice those losses. By documenting that an increase of disclosure quantity as in derivative related loss announcements does not necessarily facilitate more rational equity valuation, our study enhances our understanding about the effect of disclosure on capital market. One of the policy implications is that disclosure policy makers should consider quality of information whenever they intend to increase quantity of disclosure to improve function of capital market.
Jaiho Chung
Hyungseok Kim
Woojin Kim
Yong Keun Yoo
While previous studies suggest that the higher level of disclosure leads to a more efficient stock market, it is unclear whether a simple increase in quantity of disclosure, regardless of its quality, guarantees a better price discovery. This paper examines the separated effect of disclosure quality on how well newly disclosed information is incorporated into stock prices by analyzing stock returns around the derivative related loss announcements in Korean stock market. To properly price the losses from financial derivatives, investors need to differentiate ¡®over-hedged¡¯ firms from ¡®non-over-hedged¡¯ firms. This is because only the derivative related losses of ¡®over-hedged¡¯ firms actually lead to net losses even after being offset by gains from underlying foreign currency denominated assets. By analyzing stock returns around 131 derivative related loss announcements during March 2008 and June 2009 in Korean stock market, we find that investors misprice derivative related losses of ¡®non-over-hedged¡¯ firms when additional information to identify ¡®non-over-hedged¡¯ firms is not available. This result indicates that newly disclosed information about derivative related losses without supporting information induces investors to misprice those losses. By documenting that an increase of disclosure quantity as in derivative related loss announcements does not necessarily facilitate more rational equity valuation, our study enhances our understanding about the effect of disclosure on capital market. One of the policy implications is that disclosure policy makers should consider quality of information whenever they intend to increase quantity of disclosure to improve function of capital market.
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