Is Firm‐Specific Return Variation a Measure of Information Efficiency?

39 Pages Posted: 10 Dec 2013

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Yang Ni

Shanghai Jiao Tong University (SJTU)

Date Written: December 2013

Abstract

The issue of whether firm‐specific return variation measures the private information reflected in stock returns or trading noise is controversial. Using a firm's geographic proximity to its investors as a proxy for a firm's private information, we investigate the relation between firm‐specific return variation and price informativeness. We find that firms located in metropolitan areas experience higher firm‐specific return variation and that holdings and trading by local institutional investors positively affect firm‐specific return variation. These findings suggest that higher firm‐specific return variation is indicative of more informative stock prices.

Suggested Citation

Bae, Kee-Hong and Kim, Jin-Mo and Ni, Yang, Is Firm‐Specific Return Variation a Measure of Information Efficiency? (December 2013). International Review of Finance, Vol. 13, Issue 4, pp. 407-445, 2013. Available at SSRN: https://ssrn.com/abstract=2365953 or http://dx.doi.org/10.1111/irfi.12016

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

Yang Ni

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

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