Managerial Learning from Stock Prices: A Structural Examination
Posted: 22 Nov 2015
Date Written: January 10, 2015
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: Suggested Citation