Stock Price Informativeness and Output Growth: Some Evidence from Emerging Economies

25 Pages Posted: 2 Apr 2013

See all articles by Fang Chin Cheng

Fang Chin Cheng

University of New South Wales

Ferdinand A. Gul

Deakin University - Department of Accounting

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2013

Abstract

This paper extends the output growth model tested by Levine and Zervos (1998) by including a measure for capital allocation efficiency proxied by stock price informativeness. Using a sample of 62 countries, this study finds that stock price informativeness as measured by firm-specific return variation positively contributes to output growth after controlling for variables in the Levine and Zervos (1998) model. This effect is particularly strong for high property rights protection environments and common law countries in emerging economies. We find that stock price informativeness acts as a substitute for stock market liquidity on predicting long-run output growth in emerging economies but not in more developed economies. These results are consistent with the Roll’s (1988) claim: more information-laden stock prices signal efficient stock markets and, therefore, stronger output growth.

Keywords: Stock price informativeness, Capital allocation efficiency, Firm-specific return variation, output growth

JEL Classification: C01, C32, C33, C35, C58, C61, C87, E22, E44, E51, E62, F15, F18, G01, G12, G15, H52, P14, P43

Suggested Citation

Cheng, Fang Chin and Gul, Ferdinand A. and Srinidhi, Bin, Stock Price Informativeness and Output Growth: Some Evidence from Emerging Economies (April 1, 2013). Systemic Risk: Liquidity Risk, Governance and Financial Stability. Available at SSRN: https://ssrn.com/abstract=2242883 or http://dx.doi.org/10.2139/ssrn.2242883

Fang Chin Cheng (Contact Author)

University of New South Wales ( email )

Level 3, West Wing
Australian School of Business
Sydney, NSW 2052
Australia

Ferdinand A. Gul

Deakin University - Department of Accounting ( email )

Melbourne
Australia

Bin Srinidhi

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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