Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence

Note: This paper has been superseded by Gassen, LaFond, Skaife and Veenman: Illiquidity and Stock Price Synchronicity, http://ssrn.com/abstract=2405465. Much of prior international accounting research implicitly assumes that stock prices capture similar amounts of firm-specific information across countries. Recent research asserts that stock price synchronicity, defined as the R2 from asset pricing regressions, is a useful measure of the amount of firm-specific information impounded in stock prices in international markets. However, the results of our empirical tests provide little support for using stock price synchronicity as a measure of firm-specific information internationally. We develop an alternative measure of firm-specific information impounded in stock price based on the percentage of zero-return days, i.e., the zero-return metric, and repeat the analyses. Overall, our results suggest that the zero-return metric is a better measure of firm-specific information impounded into share prices than the synchronicity measure internationally.

[1]  K. West,et al.  Dividend Innovations and Stock Price Volatility , 1986 .

[2]  A. Shleifer,et al.  Inefficient Markets: An Introduction to Behavioral Finance , 2002 .

[3]  J. Robins,et al.  Invited commentary: ecologic studies--biases, misconceptions, and counterexamples. , 1994, American journal of epidemiology.

[4]  David A. Lesmond.  Liquidity of emerging markets , 2005 .

[5]  Baruch Lev,et al.  Information Asymmetry, R&D, and Insider Gains , 2000 .

[6]  Ole-Kristian Hope,et al.  Disclosure Practices, Enforcement of Accounting Standards and Analysts' Forecast Accuracy: An International Study , 2003 .

[7]  G. Karolyi.  The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom , 2004 .

[8]  Chu Zhang,et al.  Why Did Individual Stocks Become More Volatile , 2003 .

[9]  Michael W. Brandt,et al.  The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes? , 2008 .

[10]  U. Berkeley,et al.  Predictable Reversals , Cross-Stock Effects , and the Limits of Arbitrage , 2005 .

[11]  A. Shleifer,et al.  The Limits of Arbitrage , 1995 .

[12]  D. Freedman.  Ecological Inference and the Ecological Fallacy , 1999 .

[13]  R. Morck,et al.  Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing? , 2001 .

[14]  Nicholas Barberis,et al.  Comovement , 2001 .

[15]  Charles M. C. Lee,et al.  Retail Investor Sentiment and Return Comovements , 2005 .

[16]  Charles Trzcinka,et al.  A New Estimate of Transaction Costs , 1999 .

[17]  R. Sias,et al.  Why Has Firm-Specific Risk Increased Over Time? , 2005 .

[18]  Ľuboš Pástor,et al.  Stock Valuation and Learning About Profitability , 2002 .

[19]  S. P. Kothari,et al.  Lack of timeliness and noise as explanations for the low contemporaneuos return-earnings association , 1994 .

[20]  Allaudeen Hameed,et al.  Stock Price Synchronicity and Analyst Coverage in Emerging Markets , 2002 .

[21]  J. Robert,et al.  SHILLER, . Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?, The American Economic Review, , . , 1981 .

[22]  Carla K. Hayn.  The information content of losses , 1995 .

[23]  Mark L. DeFond,et al.  Investor Protection and Corporate Governance: Evidence from Worldwide Ceo Turnover , 2004 .

[24]  Hollis Ashbaugh,et al.  Non-US Firms' Accounting Standard Choices , 2001 .

[25]  M. Lettau,et al.  Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk , 2000 .

[26]  Karl V. Lins,et al.  Adrs, Analysts, and Accuracy: Does Cross Listing in the U.S. Improve a Firm's Information Environment and Increase Market Value? , 2002 .

[27]  R. Kalra,et al.  Earnings Management and Investor Protection: An International Comparison , 2004 .

[28]  S. P. Kothari,et al.  The Effect of International Institutional Factors on Properties of Accounting Earnings , 1999 .

[29]  Russell J. Lundholm,et al.  Bringing the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation , 2002 .

[30]  Mark H. Lang,et al.  Corporate Disclosure Policy and Analyst Behavior , 1998 .

[31]  Li Jin,et al.  R-Squared Around the World: New Theory and New Tests , 2004 .

[32]  George A. Plesko,et al.  Valuing Loss Firms , 2004 .

[33]  J. Hubbard.  ADRs, Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value? , 2003 .

[34]  Insider Trading Restrictions and Analysts' Incentives to Follow Firms , 2003 .

[35]  Firm-Specific Variation and Openness in Emerging Markets , 2003 .

[36]  Morton Pincus,et al.  Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings , 2000 .

[37]  Joseph D. Piotroski,et al.  The Influence of Analysts, Institutional Investors, and Insiders on the Incorporation of Market, Industry, and Firm-Specific Information into Stock Prices , 2004 .

[38]  David Easley,et al.  Liquidity, Information, and Infrequently Traded Stocks , 1996 .

[39]  Jeffrey Wurgler,et al.  Financial Markets and the Allocation of Capital , 1999 .

[40]  B. King.  Market and Industry Factors in Stock Price Behavior , 1966 .

[41]  Florencio López‐de‐Silanes,et al.  Law and Finance , 1996, Journal of Political Economy.

[42]  R. Morck,et al.  Value-Enhancing Capital Budgeting and Firm-specific Stock Return Variation , 2004 .

[43]  R. Greenwood,et al.  Trade and the Comovement of Stock Returns: Evidence from Japan , 2002 .

[44]  Ashok Robin,et al.  Incentives Versus Standards: Properties of Accounting Income in Four East Asian Countries, and Implications for Acceptance of IAS , 2000 .

[45]  Maureen O'Hara,et al.  Information and the Cost of Capital , 2001 .

[46]  Francis E. Warnock,et al.  Corporate governance and the shareholder base , 2004 .