Does Stock Price Synchronicity Reflect Information or Noise? The International Evidence (original) (raw)

Social Science Research Network, 2005

Abstract

ABSTRACT Prior research asserts that stock price synchronicity, defined as the R2 from asset pricing regressions, is a useful measure of the relative amount of firm-specific information reflected in stock prices. This paper investigates the validity of the information-based interpretation of stock price synchronicity in international markets. The results of our analyses 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 based on the percentage of zero return weeks, and repeat the analyses. The results suggest that the zero-return metric better captures differences in the amount of firm-specific information reflected in stock prices in international markets.

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