Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence

56 Pages Posted: 2 Aug 2005 Last revised: 16 Aug 2014

See all articles by Hollis Ashbaugh Skaife

Hollis Ashbaugh Skaife

Graduate School of Management, UC-Davis

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Ryan LaFond

Algert Global, LLC

Date Written: March 29, 2006

Abstract

Note: This paper has been superseded by Gassen, LaFond, Skaife and Veenman: Illiquidity and Stock Price Synchronicity, http://ssrn.com/abstract=2405465.

Much of prior international accounting research implicitly assumes that stock prices capture similar amounts of firm-specific information across countries. Recent research asserts that stock price synchronicity, defined as the R2 from asset pricing regressions, is a useful measure of the amount of firm-specific information impounded in stock prices in international markets. However, the results of our empirical tests provide little support for using stock price synchronicity as a measure of firm-specific information internationally. We develop an alternative measure of firm-specific information impounded in stock price based on the percentage of zero-return days, i.e., the zero-return metric, and repeat the analyses. Overall, our results suggest that the zero-return metric is a better measure of firm-specific information impounded into share prices than the synchronicity measure internationally.

JEL Classification: G12, M41, M47

Suggested Citation

Skaife, Hollis Ashbaugh and Gassen, Joachim and LaFond, Ryan, Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence (March 29, 2006). MIT Sloan Research Paper No. 4551-05, Available at SSRN: https://ssrn.com/abstract=768024 or http://dx.doi.org/10.2139/ssrn.768024

Hollis Ashbaugh Skaife

Graduate School of Management, UC-Davis ( email )

Graduate School of Management
1 Shields Ave
Davis, CA 95616
United States

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49 30 2093 5764 (Phone)
+49 30 2093 5670 (Fax)

Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE) ( email )

Spandauer Strasse 1
Berlin, D-10178
Germany

Ryan LaFond (Contact Author)

Algert Global, LLC ( email )

One Maritime Plaza
Suite 1525
San Francisco, CA 94111
United States

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