Disagreement about Public Information Quality and Informational Price Efficiency

60 Pages Posted: 18 Nov 2021

See all articles by Chong Huang

Chong Huang

University of California, Irvine - Paul Merage School of Business

Radhika Lunawat

University of California, Irvine - Accounting Area

Qiguang Wang

Hong Kong Baptist University (HKBU)

Date Written: November 18, 2021

Abstract

Investor disagreement about public information precision can be pervasive and persistent. This paper shows that when investors agree to disagree about an observed public signal's precision, as they disagree more, informational price efficiency increases. By contrast, when investors disagree about a future public signal's precision, their disagreement reduces informational price efficiency. These results lead to interesting asset pricing implications. Relative to a benchmark without investor disagreement, both price efficiency and trading volume drop before announcements and then increase after announcements. Investor disagreement also contributes to price underreaction to public news.

Keywords: Investor disagreement, informational price efficiency, dynamic REE model, trading volume, price underreaction

JEL Classification: G11, G12, G14, G41

Suggested Citation

Huang, Chong and Lunawat, Radhika and Wang, Qiguang, Disagreement about Public Information Quality and Informational Price Efficiency (November 18, 2021). Available at SSRN: https://ssrn.com/abstract=3965966 or http://dx.doi.org/10.2139/ssrn.3965966

Chong Huang (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

Radhika Lunawat

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

Qiguang Wang

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

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