Information Asymmetry About the Firm and the Permanent Price Impact of Trades: Is There a Connection?

48 Pages Posted: 3 Nov 2008 Last revised: 15 Jan 2011

See all articles by Gideon Saar

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Lei Yu

University of Notre Dame

Date Written: July 1, 2002

Abstract

We investigate whether permanent price impact measures describing intra-day price movements are helpful in characterizing information asymmetry about the fundamentals of firms. We conduct an event study of the Russell 1000 index reconstitution and find that the permanent price impact measures change around the event despite the fact that Russell 1000 membership is based on market capitalization and therefore the event is not associated with any change in private information about the firms. We also examine a large cross-sectional sample and find that the permanent price impact measures do not consistently reflect uncertainty about future earnings or relate to price informativeness about future earnings in a manner that is compatible with their use as proxies for information asymmetry about firms’ fundamentals.

Suggested Citation

Saar, Gideon and Yu, Lei, Information Asymmetry About the Firm and the Permanent Price Impact of Trades: Is There a Connection? (July 1, 2002). NYU Working Paper No. FIN-01-009, Available at SSRN: https://ssrn.com/abstract=1294465

Gideon Saar (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

Lei Yu

University of Notre Dame ( email )

256 Mendoza College of Business
Notre Dame, IN 46556
United States
574-631-9935 (Phone)
574-631-5255 (Fax)

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