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Asian Review of Financial Research, Vol., No..
pp.1676~1725
pp.1676~1725
Firm-specific variation and the informational efficiency of prices
Kee-Hong Bae Schulich School of Business York University
Jin-Mo Kim Rutgers Business School Rutgers University
Yang Ni Antai College of Economics & Management Shanghai Jiao Tong University
The issue of whether firm-specific return variation measures the private information reflected in stock returns or trading noise is controversial. Using a firm¡¯s geographic proximity to its investors as a proxy for a firm¡¯s private information, we investigate the relation between firm-specific return variation and price informativeness. We find that (1) firms located in metropolitan areas experience higher firm-specific return variation, (2) firms that relocate their corporate headquarters from a nonmetropolitan area to a metropolitan area experience a significant increase in firm-specific return variation, and (3) holdings and trading by local institutional investors positively affect firm-specific return variation. These findings suggest that higher firm-specific return variation is indicative of more informative stock prices.
Kee-Hong Bae
Jin-Mo Kim
Yang Ni
The issue of whether firm-specific return variation measures the private information reflected in stock returns or trading noise is controversial. Using a firm¡¯s geographic proximity to its investors as a proxy for a firm¡¯s private information, we investigate the relation between firm-specific return variation and price informativeness. We find that (1) firms located in metropolitan areas experience higher firm-specific return variation, (2) firms that relocate their corporate headquarters from a nonmetropolitan area to a metropolitan area experience a significant increase in firm-specific return variation, and (3) holdings and trading by local institutional investors positively affect firm-specific return variation. These findings suggest that higher firm-specific return variation is indicative of more informative stock prices.