Ryan Lafond & Joachim Gassen - Sloan School of Management, MIT and Ruhr-Universität Bochum
- Joachim Gassen - Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence
- Ryan Lafond - Are Cross Country Differences in Conservatism due to Institutional Features or Firm Specific Reporting Incentives?
Much of prior international accounting research implicitly assumes that stock prices impound information with similar precision across countries. Recent research asserts that stock price synchronicity, defined as the R2 from asset pricing regressions, is a useful measure of the amount of information reflected in stock prices. This paper investigates the validity of the information-based interpretation of stock price synchronicity in international markets. The results of our analyses provide little support for using stock price synchronicity as a measure of
information internationally. We develop an alternative measure of information based on the percentage of zero return days, i.e., zero-return metric, and repeat the analyses. Overall, our results suggest that the zero-return metric is a better measure of the relative amount of information impounded into share prices than the synchronicity measure in international markets.
Information: Brendan O’Dwyer: B.G.D.Odwyer@uva.nl