Abstract
We estimate the precision of information embedded in daily returns on the change in firm value, and examine its relation to disclosure, liquidity, and the cost of equity. We find public disclosure increases the precision of information in returns. Liquidity also increases precision, and an exogenous increase in liquidity after inclusion of a stock in major indexes increases the precision of information in its returns. An expected consequence of higher information precision is lower cost of equity, and we find that an increase in the precision of the information in prices is associated with a decrease in cost of equity.
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