Idiosyncratic return variation: firm-specific information or noise?

11 Pages Posted: 8 Jul 2021

See all articles by Yaruo Shu

Yaruo Shu

Peking University HSBC Business School

Sungbin Sohn

Peking University - HSBC Business School

Date Written: June 13, 2021

Abstract

There has been a long debate on the interpretation of idiosyncratic return variation. We inform this debate by examining the extent to which stock return synchronicity is associated with the post-earnings announcement drift (PEAD) in China. We find that firms with higher synchronicity exhibit less pronounced PEAD and that this negative association weakens for firms with high institutional ownership. Findings suggest that in the Chinese stock markets, where retail investors are in the majority, idiosyncratic returns reflect noise rather than firm-specific information on average, and institutional investors play a role in reducing noise in the idiosyncratic returns.

Keywords: Stock return synchronicity, Price informativeness, Post-Earnings Announcement Drift, Institutional ownership

JEL Classification: G14

Suggested Citation

Shu, Yaruo and Sohn, Sungbin, Idiosyncratic return variation: firm-specific information or noise? (June 13, 2021). Available at SSRN: https://ssrn.com/abstract=3880800 or http://dx.doi.org/10.2139/ssrn.3880800

Yaruo Shu

Peking University HSBC Business School ( email )

Sungbin Sohn (Contact Author)

Peking University - HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China
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