Stock Price Informativeness Research Articles

Stock Market Price Forecasting by Using Deep Learning

Stock market forecasts are an attempt to determine the future value of corporate capital or other financial products consumed in the stock market. If the future stock price forecast succeeds, you can gain great profit. The efficient market presents all the current stock price information, which shows that price fluctuations are not the basis for unnecessary new information. Others disagree that people who have these ideas have many methods and techniques to help them get future information. [1]

Voluntary Disclosure, Enterprise Risk Management and Stock Price Synchronicity: Evidence from Shar¯ı‘ah Compliant and Non-Shar¯ı‘ah Compliant Companies

The study observes that low R 2 values from market model are primarily due to the reflection of firm-specific information in stock prices and not due to noise. The study explores that the extent to which stock prices become more informative depends upon the availability of firm-specific information in the market. The methodology of stock price synchronicity is applied by using a sample of 30 Shar¯ı‘ah and 30 non-Shar¯ı‘ah compliant companies which are taken from KMI 30 and PSX 100 indexes. The study explores the impact of Shar¯ı‘ah compliance on stock price synchronicity or informativeness based upon the rationale that Islam puts emphasis on disclosure and social accountability which should reduce the firm’s information asymmetry and improve the stock price informativeness. The study reports significant and positive relationship of Shar¯ı‘ah compliance and voluntary disclosure on stock price synchronicity which is not according to the hypothesis. The possible reason may be the size effect which may be moving the firms in line with the market. Moreover, the Enterprise Risk Management (ERM) practices have significant and negative impact on stock price synchronicity. It confirms that ERM helps in improving the firm’s information environment and stock price informativeness.

Voluntary Disclosure, Enterprise Risk Management and Stock Price Synchronicity: Evidence from Shar¯ı‘ah Compliant and Non-Shar¯ı‘ah Compliant Companies

The study observes that low R 2 values from market model are primarily due to the reflection of firm-specific information in stock prices and not due to noise. The study explores that the extent to which stock prices become more informative depends upon the availability of firm-specific information in the market. The methodology of stock price synchronicity is applied by using a sample of 30 Shar¯ı‘ah and 30 non-Shar¯ı‘ah compliant companies which are taken from KMI 30 and PSX 100 indexes. The study explores the impact of Shar¯ı‘ah compliance on stock price synchronicity or informativeness based upon the rationale that Islam puts emphasis on disclosure and social accountability which should reduce the firm’s information asymmetry and improve the stock price informativeness. The study reports significant and positive relationship of Shar¯ı‘ah compliance and voluntary disclosure on stock price synchronicity which is not according to the hypothesis. The possible reason may be the size effect which may be moving the firms in line with the market. Moreover, the Enterprise Risk Management (ERM) practices have significant and negative impact on stock price synchronicity. It confirms that ERM helps in improving the firm’s information environment and stock price informativeness.

Culture and Stock Price Reaction to Private Information

Abstract This paper examines the impact of culture on stock price informativeness in a sample of firms from 23 developed stock markets. We find that the information content of private information in stock prices is higher in more individualistic countries and in low uncertainty-avoiding countries. Moreover, financial openness stimulates the incorporation of private information into individualistic countries and in low uncertainty-avoiding countries.

Information, Investment Adjustment, and the Cost of Capital

Private information imposes a severe trading disadvantage on uninformed traders while at the same time providing firms with valuable signals for investment adjustment. The two forces have opposite impacts on the cost of capital, and the net effect depends on which force dominates. We show that stocks of firms with low flexibility in investment adjustment (“value firms”) command an information premium, whereas stocks of firms with high flexibility in investment adjustment (“growth firms”) deliver an information discount. These results are consistent with the findings that growth firms exhibit stronger investment sensitivity to information in stock prices than value firms.

Big Data as a Governance Mechanism

This study empirically investigates two effects of alternative data availability: stock price informativeness and its disciplining effect on managers’ actions. Recent computing advancements have enabled technology companies to collect real-time, granular indicators of fundamentals to sell to investment professionals. These data include consumer transactions and satellite images. The introduction of these data increases price informativeness through decreased information acquisition costs, particularly in firms in which sophisticated investors have higher incentives to uncover information. I document two effects on managers. First, managers reduce their opportunistic trading. Second, investment efficiency increases, consistent with price informativeness improving managers’ incentives to invest and divest efficiently.

Do announcements of WTO dispute resolution cases matter? Evidence from the rare earth elements market

Rare earth elements (REEs) have gained increasing attention recently for several key reasons: 1) they are vital to many strategic industries, 2) they are relatively scarce, 3) they frequently exhibit high price fluctuations, 4) China holds a quasi-monopoly on their mining, and 5) China's REE policy, which was overly restrictive and led to a formal complaint from the U.S., Japan, and the EU at the World Trade Organization (WTO) in 2012. This paper investigates whether the announcement of a WTO dispute resolution case has the power to fundamentally change market dynamics. We find empirical support for this notion because REE prices exhibit a structural break around the announcement of the WTO dispute, and show lower variance ratios for all tested REEs afterward. This indicates a tendency toward efficiency, although REE prices still do not follow a random walk. Similarly, we find that stock price informativeness of companies in the REE industry increases after the announcement, reflecting more firm-specific than marketwide information and less governmental influence. Finally, we show that model uncertainty for option pricing models decreases, which we measure by the lower pricing differences among them.

Do Announcements of WTO Dispute Resolution Cases Matter? Evidence from the Rare Earth Elements Market

Rare earth elements (REEs) have gained increasing attention recently for several key reasons: 1) they are vital to many strategic industries, 2) they are relatively scarce, 3) they frequently exhibit high price fluctuations, 4) China holds a quasi-monopoly on their mining, and 5) China’s REE policy, which was overly restrictive and led to a formal complaint from the U.S., Japan, and the EU at the World Trade Organization (WTO) in 2012. This paper investigates whether the announcement of a WTO dispute resolution case has the power to fundamentally change market dynamics. We find empirical support for this notion because REE prices exhibit a structural break around the announcement of the WTO dispute, and show lower variance ratios for all tested REEs afterward. This indicates a tendency toward efficiency, although REE prices still do not follow a random walk. Similarly, we find that stock price informativeness of companies in the REE industry increases after the announcement, reflecting more firm-specific than marketwide information and less governmental influence. Finally, we show that model uncertainty for option pricing models decreases, which we measure by the lower pricing differences among them.

Financial Literacy and Stock Price Informativeness: a Cross-Country Study

Abstract This paper examines the impact of financial literacy on stock price informativeness in a sample of firms from 20 countries. Using four measures of stock price informativeness, we find a significant relationship between higher financial literacy and higher stock price informativeness. The individual investors’ contribution regarding the incorporation of specific information into stock prices includes private information also and not mere specific information in the general sense. Financial knowledge is the key element that helps individual investors to incorporate specific information into stock prices.

Why Do Agency Theorists Misinterpret Market Monitoring?

Separation of ownership and control is the main governance problem facing the modern corporation (Adam Smith, 1776, Berle and Means, 1932, Jensen and Meckling, 1976). With no one to care for passive outside investors, large and liquid companies should not exist. I hypothesize that informed speculators fulfill this role by monitoring management. Indeed, in the manager’s optimal contract, I show that stock price weight (inside ownership) must fall with more informative stock prices and scale. Holmstrom and Tirole (1993) seems to rule out this monitoring explanation by its (false) finding that monitoring gives rise to high- not low-powered incentives.

Managerial Compensation and Stock Price Informativeness

We study the motive of using equity-based pay in executive compensation: the risk-sharing motive versus the performance-measuring motive. The empirical design goes through the relationship between equity-based pay and stock price informativeness (SPI). We find equity-based pay decreases in SPI, which is consistent with the risk-sharing motive but inconsistent with the performance-measuring motive. The SPI effect on compensation is stronger in financially-constrained firms, more diversified firms, and firms with less product market competition. SPI increases pay efficiency through a larger proportion of option pay, fewer perquisites, and greater pay-for-skill. We address potential endogeneity concerns by investigating the changes in compensation of managers switching between firms with different SPI.

Does US cross-listing come with incremental benefit for already UK cross-listed firms

The aim of this paper is twofold. First, we try to understand the reasons that explain the decision made by companies with UK cross-listing to cross-list their shares in the US. Second, we study the impact of cross-listing on value creation. Our results shown that the motivations for such decision are related to the improvement of stock price informativeness and investor protection interests. Firms may also be motivated by reasons related to the global business strategy. However, the commitment to additional higher disclosure requirements and geographic proximity act negatively on the decision to cross-list. By applying a methodology taking into account the endogeneity of the cross-listing decision, we found results that support the positive effect of cross-listing on performance. The finding also revealed the existence of an indirect impact of the cross-listing decision through its determinants on performance.

Cross-Country Differences in the Effect of Political Connections on Stock Price Informativeness

Using an international sample of firms from 28 countries, we document that there exists a negative relationship between political connections and the informativeness of stock price, as measured by idiosyncratic volatility (IV). This finding is robust to alternative regression specifications, sub-samples analyses, and concerns related to endogeneity. A more detailed analysis shows that out of the different types of possible connections, the connectedness of the owners is the primary driver of this result. Further, the negative association is only significant for firms in countries characterized by low institutional quality (i.e. corrupted countries, countries with low access to external equity markets, and countries with low media penetration). There is no evidence of any relation between political connections and stock price informativeness for firms in countries characterized by high institutional quality. Overall, our results show that although political connections exacerbate rent-seeking that weaken the firms' information environments on average, the negative information consequences are compensated by the countries' institutional quality.

Market Efficiency in Malaysia: An Empirical Study of Random Walk Hypothesis of Kuala Lumpur Stock Market (Composite Index) Bursa Malaysia

As long as financial markets are concerned, for many years’ economists, statisticians and financial analyst have been interested in developing and testing models of stock price behaviour and their forecast. This study examines whether the Kuala Lumpur Stock Market, Malaysia is efficient if the Stock Returns follow a random walk. The study employs daily closing prices of Kuala Lumpur Stock Exchange – Bursa Malaysia Composite Index for a time period of 28 Apr 1998 to 30 Dec 2014. The existence of random walk for Bursa Malaysia Index has been examined through autocorrelation, Q-statistics and the run test and finds that the Kuala Lumpur Stock Market was not efficient in the weak form during the testing period. The results suggest that the stock prices in Malaysia do not reflect all the information in the past stock prices and abnormal returns can be achieved by investors through exploiting the market inefficiency.

Market Efficiency in India: An Empirical Study of Random Walk Hypothesis of Indian Stock Market NSE Midcap

As long as financial markets are concerned, for many years’ economists, statisticians and financial analyst have been interested in developing and testing models of stock price behaviour and their forecast. This study examines whether the Indian stock market is efficient if the stock returns follow a random walk. The study employs daily closing prices of NSE Midcap 50 Index for a time period of 15 Sept 2010-28 Nov 2014. The existence of random walk for NSE Midcap Index has been examined through autocorrelation, Q-statistics and the run test and finds that the Indian stock market was not efficient in the weak form during the testing period. The results suggest that the stock prices in India do not reflect all the information in the past stock prices and abnormal returns can be achieved by investors through exploiting the market inefficiency.

Board Gender Diversity, Earnings Quality and Stock Price Informativeness

Further recognition of women’s social value and the gradual improvement of women’s economic status have made the proportion of female independent directors on board rise year by year, which has received high attention from academia. Using data of A-share listed companies in Shanghai and Shenzhen stock markets form 2000-2014 in China, this paper investigates the relation among gender diversity, earnings quality and stock price informativeness. As a result, the larger the proportion of female independent directors is, the more firm-specific information the stock price contains. In the meantime, earnings quality of listed companies significantly impact on stock price informativeness, which means that stock prices of companies with higher earnings quality contain more firm-specific information while having other factors controlled. Further studies show that the relation between board gender diversity and stock price informativeness is not simply direct; board gender diversity could raise the stock price informativeness through enhancing earnings quality.

Investor-Paid Credit Rating Agency and Stock Price Informativeness

Unlike issuer-paid credit rating agencies (CRAs), investor-paid CRAs are compensated by investors for their rating services. This paper documents that the coverage of an investor-paid rating agency (the Egan Jones Ratings, EJR) increases rated firms’ stock price informativeness. To alleviate endogeneity concerns, I rely on two quasi-natural experiments that shock the importance of EJR for investors’ information acquisition. EJR coverage increases price informativeness through two channels, namely, by producing incremental information and by disciplining managerial information disclosure. Moreover, the positive effect of EJR’s coverage on price informativeness is more pronounced when the conflict of interest faced by issuer-paid rating agencies is more severe. Lastly, the coverage of an issuer-paid CRA (Standard & Poor’s) is not associated with changes in price informativeness. I conclude that investor-paid CRAs function as a type of effective information intermediary to discipline firm managers and improve corporate transparency.

Transparency Regulation and Stock Price Informativeness: Evidence From the European Union’s Transparency Directive

We examine changes in stock price informativeness following the European Union’s Transparency Directive (TPD). The TPD, implemented by country between 2007 and 2009, enhanced corporate transparency through mandating regular firm financial disclosures and the dissemination of financial reports. Using stock return synchronicity as a proxy for stock price informativeness, we find that price informativeness improved following implementation of the TPD. This improvement was more pronounced in countries with strong regulatory environments than those with weak regulatory environments. We also examine a later amendment to the TPD that eliminated the requirement of quarterly financial disclosures and document an increase in stock return synchronicity following the amendment, suggesting that it may have been premature from the standpoint of public information flow. Our findings support prior research suggesting that transparency regulations improve financial information. https://doi.org/10.2308/jiar-52383

Do Managers Listen to the Market? A Review of the Relationship between Investment and Stock Price Informativeness

Using a sample of stocks from developed and emerging markets, we analyze the sensitivity of investment to stock price. Consistent with prior research, we find a positive association between investment and stock prices (measured by Tobin’s Q), although more pronounced in developed markets than in emerging markets. Remarkably, that association increases with the informativeness of stock prices. However, not all measures of informativeness relate positively with investment-stock price sensitivity. While measures related with the amount of private information conveyed by prices (e.g., price non-synchronicity) heighten the investment-stock price sensitivity, others, such as the variance ratio or delay in the assimilation of common-wide information, hardly affect that sensitivity. To gauge the presence of a causal relationship between price informativeness and investment-stock price sensitivity, we explore a quasi-random event that enhances the information environment of a stock: reconstitutions of MSCI ACWI. By means of an instrumental variables approach, we show that positive (exogenous) shocks on the price informativeness of stocks elevate the investment-stock price sensitivity. Overall, these results support theories of managerial learning, i.e., managers extract information from stock price when making investment decisions, in particular when prices convey more private information not known to them.

The Effect of Accounting Information on Stock Price Predictions Through Fluctuation of Stock Price, Evidence From Indonesia

This article describes the results of research on the effect of accounting information on the accuracy of analyst predictions, using stock price fluctuations as a mediation variable. Accounting information uses three measurements, i.e. changes in revenue, changes in net income before extraordinary (NIBE), and changes in debt. This accounting information is combined with market information such as stock price information. A sample of 54 issuers listed on the Indonesia Stock Exchange. The sample is selected using the purposive sampling method. The analytical method uses the ordinary least square estimation method with the data panel structure, to test for direct influence. For indirect effect test, used two least square methods with panel data structure. The tool that used in this analysis was Stata. The results show that changes in revenue have a significant impact on stock price fluctuations. Then, stock price fluctuations may mediate the effect of information on revenue changes on the precise prediction of analysts. This means that changes in revenue will be stronger influence on the accuracy of analyst predictions, if there is an increase in stock prices. For indirect influence, this study proves that changes in revenue affect the accuracy of analyst predictions, through fluctuations in stock prices.