Information Asymmetry, Market Liquidity and Abnormal Returns

Abstract

Because the stock market is relatively difficult for individual investors to obtain information, there exist information asymmetry, and the stock may have abnormal returns. For companies with a large amount of institution investors, the information should be more complete. So, this study is grouped according to the proportion of individual and institution shareholdings, and test the correlation between information asymmetry and abnormal returns in different groups. We also explore the relationship among information asymmetry, abnormal returns, turnover and market return. This study test Taiwan’s listed stock market samples from 2006 to 2019. The empirical results are as follows: (1) The abnormal return is no significant difference between high proportion of individual shares and high proportion of institution shares. (2) The long-term abnormal returns are significantly greater than the short-term abnormal returns, for the stocks have significant changes in the proportion of individual or institution shareholdings. (3) Among the shocks that affect information asymmetry, the turnover has the largest effect, second is market returns and final is abnormal returns. And, each variable has a positive correlation with the information asymmetry.