Stock Price Synchronicity, Earnings Quality, Foreign Ownership: Evidence of ASX200 Firms

Abstract

The issue of stock price synchronicity has been a debate for more than a decade. The question is central to what information that is more reflected in market stock price. One stream suggests that firm-specific information is, relatively, more reflected in its stock price, while the other streams argues that market (industry)-specific information is more relevant in stock price formation (Zhou, 2007). Studies about stock price synchronicity have been ubiquitous in emerging markets (e.g. Gul et al., 2010; Li et al., 2020; Vo & Chu, 2019; Farooq & Aktaruzzaman, 2016; Lyimo, 2014). Price synchronicity studies are also found in mature markets but majorly in US (e.g. Zhou, 2007; Gul et al., 2011; Kan & Gong, 2018). To the author knowledge, the only study of stock price synchronicity in Australia is by Bissessur & Hodgson (2012) that investigate the impact of IFRS adoption. Generally, prior studies found that IFRS implementation increases financial reporting quality. Specifically, this study focuses on the relationship between earnings quality and price synchronicity, since earnings is the mostly accounting information used by investors to price the stocks in the market. Keywords: ASX200,Conservatism, Foreign ownership, Stock price synchronicity, Timeliness, Value relevance