Stock Price Efficiency Research Articles

Social media, investor‒firm interactions and informational efficiency of stock prices: Evidence from China

Using a sample of Chinese listed companies from 2010 to 2022, we examine how investor‒firm online interactions influence informational efficiency of stock prices. The empirical results indicate that investor–firm online interactions significantly enhance informational efficiency. After conducting a series of robustness checks, the conclusions remain valid. Mechanistic analysis demonstrates that investor–firm online interactions enhance informational efficiency primarily by reducing information asymmetry and correcting stock mispricing. We emphasize the critical importance of retail investor–firm online interactions within social media platforms in promoting informational efficiency of stock prices.

Institutional investor cliques and stock price efficiency: Evidence from China

We investigate the impact of coordinating groups of institutional investors (cliques) on stock price efficiency in China. Employing the Louvain algorithm, we identify institutional investor cliques based on their holding networks and observe strongly correlated trading behaviors among clique members. Our baseline findings document that institutional investor clique ownership impedes stock price efficiency. We also provide a potential mechanism suggesting that this impediment effect arises from reduced information acquisition by clique members. Our additional analyses suggest that the inefficient stock prices induced by institutional cliques may exacerbate stock bubbles and increase the stock price crash risk.

Number Processing Constraints and Earnings News

Neuroscience shows that human brains are neurologically constrained to process small numbers linearly and large numbers logarithmically, leading to underreactions to larger numbers as their perceived difference becomes smaller. We test this hypothesis in the context of earnings announcements and find that investors respond less in the short term to earnings news for stocks with high earnings per share magnitudes, exacerbating postearnings announcement drift for these stocks. These findings are distinct from and incremental to several risk-based and behavioral explanations, attenuated by robot presence and present in a quasi-experimental design using stock splits. Our evidence suggests that number processing constraints have implications for stock price efficiency. This paper was accepted by Will Cong, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01722 .

Impact of investor trust on public firms’ stock price efficiency and cost of capital: Insights from a firm-level measure for investor trust

Although studies have suggested that investor trust positively influences stock price efficiency and subsequently reduces the cost of capital for public firms, few studies have employed a direct firm-level measure of investor trust to offer empirical support for this proposition. Because stock prices are more efficient surrounding earnings announcements, we construct this measure by examining how prices change when unexpected earnings reports are provided. Using US market data from 1990 to 2019 to determine how strongly investor trust affects public firms’ stock price efficiency and cost of capital, we find that stock prices of firms with higher investor trust reflect market news more efficiently and predict earnings more accurately. Furthermore, our results suggest that companies trusted more by investors can raise money more cheaply. Collectively, our findings underscore the importance of fostering investor trust as a means of enhancing stock price efficiency and reducing the cost of capital.

The Effect Of Added Market Value On Stock Pricing Efficiency According To The Sharpe Model

The main objective of the research is to study the effect of added market value on the efficiency of stock prices according to the Sharpe model for pricing corporate stocks, according to what emerged from the literature review at the theoretical level, including previous studies, and to deduce its trends associated with the power of interpretation predicted by the research hypotheses in their content related to the impact of value. Added market value to the efficiency of stock prices of the companies studied at the level of the industrial sector in the Iraqi Stock Exchange. A sample was tested using a purposive sampling method that included (13) thirteen industrial companies contributing to the Iraqi Stock Exchange out of (21) twenty-one industrial companies. Over the time horizon of the research, which is (13) thirteen years (2010-2022), then the variables were measured and analyzed at the financial and statistical levels, described and interpreted using the double data method (panel data) to show the impact of the time series, as well as using description and inference tools. Statisticians, including measures of central tendency and dispersion in relation to the results of statistical description, correlation and regression as far as interpretation and inference are concerned, and after conducting mathematical analyzes of the studied company data and testing the research hypothesis in the selected sample, a number of results were reached, including the effect of the added market value owned by the companies Directly with the company's stock prices according to the use of the Sharpe model for stock pricing, and companies that have an added market value have high stock prices as a result of their possession of a high market value and thus a distinctive position among other competitors. Also, companies that have an added market value achieve large profits, and it is Then the research came out with a number of recommendations, paying attention to the availability and measurement of the added market value of Iraqi industrial companies contributing to the Iraqi stock market, which contributes to maximizing the companies’ stock prices. The research also came up with a number of future studies that require other designs in the way of scientific investigation and an attempt to improve the theory. . Paper type: Research paper

Jump Clustering, Information Flows, and Stock Price Efficiency

Abstract We study the clustering behavior of stock return jumps modeled by a self/cross-exciting process embedded in a stochastic volatility model. Based on the model estimates, we propose a novel measurement of stock price efficiency characterized by the extent of jump clustering that stock returns exhibit. This measurement demonstrates the capability of capturing the speed at which stock prices assimilate new information, especially at the firm-specific level. Furthermore, we assess the predictability of self-exciting (clustered) jumps in stock returns. We employ a particle filter to sample latent states in the out-of-sample period and perform one-step-ahead probabilistic forecasting on upcoming jumps. We introduce a new statistic derived from predicted probabilities of positive and negative jumps, which has been shown to be effective in return predictions.

Do corporate site visits affect the informational role of independent directors?

AbstractThis study examines the influence of corporate site visits on information acquisition and dissemination by independent directors (IDs). Employing two unique sources of data from Chinese listed firms based on the mandatory disclosure of IDs’ (i) site visit activities and (ii) opinions about corporate decisions, we find that the acquisition of firm‐specific information and the dissemination of such information to the market are greater among IDs who conduct visits than their counterparts without such visits. Moreover, this effect is more pronounced in firms with complex information environments, in firms with lower proprietary costs, and among IDs with greater internal information asymmetry, superior external information, and stronger incentives and abilities to perform their duties. Furthermore, the firm‐specific information disseminated by IDs leads to stronger market reactions and improves stock price efficiency. Our study shows that site visits contribute to the informational role of IDs, and our evidence offers important corporate governance and regulatory implications.

Corporate green innovation and stock price non-synchronicity: Evidence from China

Leveraging a large sample of publicly listed companies in China from 2012 to 2021, the present study investigates the impact of corporate green innovation on stock price synchronicity. We provide compelling evidence that green innovation facilitates the incorporation of firm-specific information into stock prices, measured by idiosyncratic volatility. In addition, we find that analyst coverage and institutional ownership are two possible economic mechanisms underlying the relationship we identified. The price efficiency implications of corporate green innovation are more evident among small firms, manufacturing firms, and firms with weak corporate governance. Our key findings are robust to a battery of identification strategies. Overall, our study sheds light on the unintended consequences of corporate green innovation (i.e., stock price informativeness), thereby enriching the literature on green innovation and stock price efficiency.

Margin-buying, short-selling, and stock valuation: Why is the effect reversed over time in China?

China launched a pilot program in March 2010 to lift the ban on margin-buying and short-selling. Based on the first two batches of designated stocks, the literature documents that lifting the ban has a negative effect on stock valuation. However, we show that the effect has reversed to positive for the next six batches of designated stocks. We explore several potential explanations. Our analyses show that as short-selling volume grew at a much slower pace or even declined relative to margin-buying volume over our sample period, the positive effect of margin-buying on stock valuation has dominated the negative effect of short-selling. Both time-series and cross-sectional tests show that the imbalance between margin-buying and short-selling is the main driver of the reversal. We further show that the effect of lifting margin-buying and short-selling ban on stock price efficiency and discovery also reversed over time.

Exit as governance: The effect of stock liquidity on firm productivity

AbstractThis study examines the effect of stock liquidity on firm productivity. Our findings indicate that stock liquidity positively affects firm productivity. Our study provides several pieces of evidence to show that stock liquidity enhances firm productivity through facilitation of corporate governance by shareholders and stock price efficiency. Additionally, we confirm that the impact of stock liquidity on productivity is more pronounced for firms with lower attendance at shareholder meetings, with less financial constraints and that are state‐owned enterprises. This study makes a valuable contribution to the existing literature by presenting novel evidence regarding the influence of stock liquidity on firm productivity in emerging markets.

Investor–firm interactions and corporate investment efficiency: Evidence from China

Using a sample of A-listed companies from 2010 to 2020, this paper investigates how investor–firm interactions on Easy Interaction and E-interaction affect corporate investment efficiency measured as investment-to-Tobin's Q sensitivity. The empirical results show that investor–firm interactions are positively correlated with corporate investment efficiency. Possible economic channels include information asymmetry and corporate governance channels. Moreover, investor–firm interactions have a greater impact on firms with fewer financial constraints, higher stock price efficiency, higher media coverage, and higher analyst coverage. When interaction sentiment is more positive, interaction quality is higher, and the topic pertains to technology research and development, the impact of investor–firm interactions is also more pronounced. The main conclusion still holds after adopting a series of endogeneity tests and robustness tests.

Institutional investor cliques and stock price efficiency: Evidence from China ☆

Institutional investor cliques and stock price efficiency: Evidence from China ☆

Influence of a wider trading range on stock price efficiency: Evidence from ChiNext stocks in China

We investigate the influence of widening ChiNext stocks’ daily price limit on stock price efficiency in China. Compared with Main Board stocks, following the adjustment in the price limit, ChiNext stocks immediately demonstrate increased price delay and idiosyncratic volatility, with reduced price synchronicity. These results indicate a more significant rise in firm-specific information production and slower assimilation of public information for ChiNext stocks. Although price delay and synchronicity effects fade after one and two years, idiosyncratic volatility effect remains notable. Our further analysis for the immediate influence reveals that, after this event, the liquidity component of price delay decreases more while the information uncertainty component of price delay increases more for ChiNext stocks than for Main Board stocks. Consequently, our findings suggest that heightened information uncertainty outweighs increased stock liquidity, leading to higher increases in stock price delay for ChiNext stocks than for Main Board stocks after the event.

The Impact of Market Maker Competition on Price Efficiency Features in the Tunisian stock Market

The purpose of this study — is to determine the relationship between market maker competition and stock price efficiency in TSE (Tunisian Stock Exchange) market. The proxy for competition was determined as the number of market makers and the parameters investigated were transaction costs, information asymmetry and profit. The high positive correlation between competition and stock price efficiency is demonstrated by the negative impact of competition on all the variables studied. In addition, the price efficiency increased considerably after the introduction of new market makers by using the difference-in-difference (DID) model. Also, the competition between market makers has a significant negative impact on price efficiency through transaction costs, asymmetry information and level of experience. Thus, it can be concluded that the stock price efficiency can be improved by increasing the competition of market makers in Tunisia.

Does equity market openness increase productivity? the dual effects of Shanghai-Hong Kong stock Connect program in China

This study investigates the dual effects of equity market openness on aggregate total factor productivity (TFP) growth and finds that gains in aggregate TFP can be driven by within-firm and reallocation effects across firms. Using a quasi-natural experiment based on China’s Shanghai-Hong Kong Stock Connect program, we find that equity market openness has a positive effect on firms’ TFP. Stock price efficiency is the mechanism underlying this improvement. Equity market openness reduces firms’ stock mispricing and improves corporate governance and investment efficiency through the feedback effect, thereby increasing TFP. Finally, we argue that equity market openness induces significant growth in capital stock and employment among high-TFP firms, driving them to achieve rapid growth and greater market share. The reallocation effect of equity market openness translates into aggregate productivity gains. This empirical study considers stock pricing as a mechanism to shed light on the dual effect of equity market openness on TFP growth.

Investor attention and stock price efficiency: Evidence from quasi‐natural experiments in China

AbstractWe examine whether increasing investor attention affects stock price efficiency. To identify the causal effect, we employ daily repeated quasi‐natural experiments in China where investor attention difference is purely driven by price rounding effect without information regarding stock fundamentals. Stocks tend to draw significant more attention and show higher price efficiency after being exposed to the Winner List. We also find supporting evidence for two nonexclusive channels through which investor attention enhance stock price efficiency: increasing stock liquidity and stronger net inflows from large orders. The positive relationship between investor attention and price efficiency is more pronounced among stocks with lower institutional shareholdings, stocks without overseas or Big Four audit firms, and stocks without B‐ or H‐shares. Our findings further shed light on the significant impact of saliency on the capital market.

Neighbors in space: Satellite imagery and Chinese B-share discount

In this study, we examine how the effectiveness of satellite imagery affects stock price efficiency in the international capital market. With advancements in remote-sensing technology, sophisticated international investors have better access to detailed and real-time indicators of firm fundamentals through satellite imagery since the last decade. Our findings indicate that the availability of satellite imagery effectively mitigates the inefficient B-share discount in China by potentially addressing information asymmetry. Furthermore, we highlight the role of satellite data as a valuable complement to traditional information sources as well as its ability to monitor companies with unreliable disclosures. This study contributes to the literature on big data and capital market efficiency, while also offering policy implications for the technological advancement of the financial industry and the high-quality opening of the Chinese capital market.

Stock market liberalization and financial reporting quality

This study employs the Mainland-Hong Kong Stock Connect pilot program in China to investigate the influence of stock market liberalization on firm-level financial reporting quality (FRQ). First, through a staggered difference-in-difference specification strategy, we find that eligible firms experience a significant improvement in FRQ, as measured by a composite proxy of accrual earnings management, real activities manipulation, and financial report restatement. Second, cross-sectional analyses suggest that the effect is stronger when firms are headquartered in regions with weaker institutional environments, characterized by lower judicial efficiency and less developed financial markets. We also show that the impact is more pronounced when firms face less external pressure and possess more effective corporate governance before stock market liberalization. Third, further evidence highlights that augmented FRQ is associated with a reduction in regulatory compliance costs, an improvement in stock price efficiency, and a mitigation of financing constraints. Collectively, we shed new light on the role of stock market liberalization in shaping firms’ financial reporting behavior.

Is ESG Data Financially Viable? A Case of Stock Price Synchronicity

According to the information efficiency view, stock price synchronicity reflects the degree of integration of firm-specific information with market-level information. Stock price synchronicity is higher (lower) when there is a higher (lower) level of integration between the firm and the overall market information. As the disclosure of environmental, social and governance data provides more firm-specific, non-financial, value-relevant information to the market, stock prices reflect such information efficiently. It leads to more information efficiency and lower synchronicity of stock prices. Against this backdrop, the present study examines the relationship between ESG and its component scores and stock price synchronicity using a sample of 163 Indian companies reporting their ESG scores through the Thomson Reuters database from 2011 to 2021. The findings of the study confirmed that the ESG score and the scores of its components (except the governance score) have a significant negative impact on stock price synchronicity and a significant positive impact on idiosyncratic volatility. This is consistent with the information efficiency viewpoint, implying that ESG disclosure has value relevance in the capital market and that investors in the Indian market consider ESG information when making investment decisions.

Insider trading, future earnings, and post-earnings announcement drift

This paper examines the association between insider trading prior to quarterly earnings announcements and the magnitude of the post-earnings announcement drift (PEAD). We conjecture and find that insider trades reflect insiders’ private information about the persistence of earnings news. Thus, insider trades can help investors better understand and incorporate the time-series properties of quarterly earnings into stock prices in a timely and unbiased manner, thereby mitigating PEAD. As predicted, PEAD is significantly lower when earnings announcements are preceded by insider trading. The reduction in PEAD is driven by contradictory insider trades (i.e., net buys before large negative earnings news or net sells before large positive earnings news) and is more pronounced in the presence of more sophisticated market participants. Consistent with investors extracting and trading on insiders’ private information, pre-announcement insider trading is associated with smaller market reactions to future earnings news in each of the four subsequent quarters. Overall, our findings indicate insider trading contributes to stock price efficiency by conveying insiders’ private information about future earnings and especially the persistence of earnings news.