Does misvaluation leads to more informative prices?

Abstract

I motivate and find empirical evidence that positive information is more valuable to investors than negative information. Post corporate under-(over-)valuation signals, information production increases (decreases), increasing (decreasing) price informativeness (PI). PI decreases more in firms with worse investment opportunities, poor corporate governance, more entrenched manager, and higher short-sale constraints. And, PI increases more in firms with better investment opportunities and higher investment-to-Q ratios. Results imply that market over-valuations are corrected slower than under-valuations and hence are stickier and more prevalent in the economy. Persistent and long-lasting performances of short-legs of anomaly portfolios could be the result of such a phenomenon.