Abstract

http://ssrn.com/abstract=2437387
 


 



Information Quality, Growth Options, and Stock Returns


Matthew R. Lyle


Northwestern University - Kellogg School of Management

October 8, 2015


Abstract:     
The association between future stock returns and information quality depends on how option-like is the firm's equity. The more growth options held by the firm, the more option-like is the firm's equity. This study shows that the association between future stock returns and information quality is negative (positive) for those firms with equity that is least (most) option-like. These results are consistent with rational pricing, are predictable based on traditional asset pricing theory, and are robust to numerous specifications. These findings offer a theoretical-based and empirically-supported explanation for why some influential prior studies, that do not condition on the option-like nature of equity, have documented either a positive or no association between information quality and future stock returns.

Number of Pages in PDF File: 63

Keywords: Information Quality, Growth Options, Stock Returns, Variance Risk Premiums

JEL Classification: G10, G11, G14, M41


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Date posted: May 16, 2014 ; Last revised: November 21, 2015

Suggested Citation

Lyle, Matthew R., Information Quality, Growth Options, and Stock Returns (October 8, 2015). Available at SSRN: http://ssrn.com/abstract=2437387 or http://dx.doi.org/10.2139/ssrn.2437387

Contact Information

Matthew R. Lyle (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
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