Equity Market Competition and Stock Price Crash Risk
48 Pages Posted: 18 Sep 2015 Last revised: 5 Oct 2017
Date Written: September 30, 2017
This study investigates the impact of equity market competition on stock price crash risk. Higher levels of equity market competition lead to a faster incorporation of information into stock prices, so that the amount of information that is at any time impounded into prices is greater. I find that equity market competition reduces the effectiveness of bad news hiding and is associated with a reduced likelihood of crashes. Additional tests show that the importance of equity market competition is concentrated in firms with higher levels of information asymmetry and during high-sentiment periods and provide further support for this hypothesis.
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