Revisiting Roll's R2 Puzzle

37 Pages Posted: 4 Feb 2020 Last revised: 14 Oct 2020

See all articles by Brent Kitchens

Brent Kitchens

University of Virginia - McIntire School of Commerce

Robert Parham

University of Virginia - McIntire School of Commerce

Chris Yung

University of Virginia - McIntire School of Commerce

Date Written: January 1, 2020

Abstract

We resolve Roll's R2 puzzle. Before legislation enacted to prevent such practices, information leakage through selective disclosure could be incorporated into market prices prior to public release of news. I.e., "news days" did not deliver news to the stock market. Now they do. We show changes in return R2 and turnover R2 behavior around the passage of legislation barring selective disclosure practices in the US and in the EU, and document lack of such changes in Australia and Japan, which did not implement similar measures. We further show that certain types of news, such as positive events and news released near weekends, were more likely to leak prior to this legislation. Roll's R2 puzzle no longer holds, but only for locales that implemented selective disclosure directives.

Keywords: News, Media, Information, Price efficiency

JEL Classification: G14, G15, G18

Suggested Citation

Kitchens, Brent and Parham, Robert and Yung, Chris, Revisiting Roll's R2 Puzzle (January 1, 2020). Available at SSRN: https://ssrn.com/abstract=3517521 or http://dx.doi.org/10.2139/ssrn.3517521

Brent Kitchens

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Robert Parham (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

1400 University Ave
Charlottesville, VA 22903
United States

HOME PAGE: http://kn.owled.ge

Chris Yung

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-242-0836 (Phone)

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