Managerial Learning from Stock Prices: A Structural Examination

Posted: 22 Nov 2015

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Di (Andrew) Wu

University of Michigan, Stephen M. Ross School of Business

Date Written: January 10, 2015

Abstract

Using a structural market microstructure model, we develop a new measure of price informativeness that utilizes data on both price and volume, which we call the INF measure. We show that, compared to traditional measures, our measure is better at capturing information in prices, evidenced by increased INF, but not in other measures, when firms disclose material information via 8-Ks. Next, using INF, we find evidence of managerial learning from stock prices, as the sensitivity of firm investment to price is higher when INF is higher. In addition, we demonstrate that the momentum effect is stronger for stocks with higher INF.

Keywords: price informativeness

JEL Classification: G10, G14

Suggested Citation

Goldstein, Itay and Wu, Di, Managerial Learning from Stock Prices: A Structural Examination (January 10, 2015). Available at SSRN: https://ssrn.com/abstract=2693659

Itay Goldstein (Contact Author)

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Di Wu

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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