The Influence of Analysts, Institutional Investors, and Insiders on the Incorporation of Market, Industry, and Firm-Specific Information into Stock Prices

2004 ◽  
Vol 79 (4) ◽  
pp. 1119-1151 ◽  
Author(s):  
Joseph D. Piotroski ◽  
Darren T. Roulstone
Keyword(s):  
Institutional Investors ◽  
Stock Prices ◽  
Stock Return ◽  
Relevant Information ◽  
Specific Information ◽  
Specific Component ◽  
Future Earnings ◽  
Industry Level ◽  
Level Information ◽  
Information Advantage

We investigate the extent to which the trading and trade-generating activities of three informed market participants—financial analysts, institutional investors, and insiders—influence the relative amount of firm-specific, industry-level, and market-level information impounded into stock prices, as measured by stock return synchronicity. We find that stock return synchronicity is positively associated with analyst forecasting activities, consistent with analysts increasing the amount of industry-level information in prices through intra-industry information transfers. In contrast, stock return synchronicity is inversely related to insider trades, consistent with these transactions conveying firm-specific information. Supplemental tests show that insider and institutional trading accelerate the incorporation of the firm-specific component of future earnings news into prices alone, while analyst forecasting activity accelerates both the industry and firm-specific component of future earnings news. Our results suggest that all three parties influence the firm's information environment, but the type of price-relevant information conveyed by their activities depends on each party's relative information advantage.

Do Local Investors Always Know Better? Evidence from China's Market Segmentation

2018 ◽  
Vol 33 (1) ◽  
pp. 17-37
Author(s):  
Sean Shun Cao ◽  
Tao Ma ◽  
Chi Wan
Keyword(s):  
Emerging Markets ◽  
Financial Reporting ◽  
Market Segmentation ◽  
Stock Prices ◽  
Reporting Quality ◽  
Specific Information ◽  
Accounting Quality ◽  
Foreign Investors ◽  
Level Information ◽  
Information Advantage

SYNOPSIS It is well documented that domestic investors have an information advantage over foreign investors. We utilize the market segmentation of Chinese A- and B-shares to disentangle the information sets of domestic versus foreign investors. We find that while domestic investors lead foreign investors in firm-specific information, the latter are better at incorporating macro-level information into stock prices. Thus, our results indicate that, in contrast to conventional beliefs, foreign investors are not at an absolute information disadvantage in emerging markets. In addition, we find that domestic investors' firm-specific information advantage is weakened among firms that have higher accounting quality and in situations where foreign investors face fewer cultural and communication barriers. Taken together, our paper indicates the key information role played by foreign investors and the importance of financial reporting quality in emerging markets.

scholarly journals Stock Return Synchronicity and Analysts’ Forecast Properties

2016 ◽  
Vol 18 (3) ◽  
pp. 301
Author(s):  
Joong-Seok Cho ◽  
Hyung Ju Park ◽  
Ji-Hye Park
Keyword(s):  
Stock Price ◽  
Stock Return ◽  
Earnings Forecasts ◽  
Information Environment ◽  
Specific Information ◽  
Firm Level ◽  
Industry Level ◽  
Level Information ◽  
Annual Earnings

Using stock return synchronicity as a measure of a firm’s information environment, our research investigates how the firms’ stock return synchronicity affects analysts’ forecast properties for the accuracy and optimism of the analysts’ annual earnings forecasts. Stock return synchronicity represents the degree to which market and industry information explains firm-level stock return variations. A higher stock return synchronicity indicates the higher quality of a firm’s information environment, because a firm’s stock price reflects more market-level and industry-level information relative to firm-specific information. Our study shows that stock return synchronicity positively affects the forecast properties. Our finding shows that when stock return synchronicity is high, analysts’ annual earnings forecasts are more accurate and less optimistically biased.

Analysts' Information Acquisition and Stock Price Synchronicity: A Regulatory Perspective from China

2018 ◽  
Vol 33 (1) ◽  
pp. 153-179 ◽  
Author(s):  
Haiyan Jiang ◽  
Donghua Zhou ◽  
Joseph H. Zhang
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Stock Prices ◽  
Information Acquisition ◽  
Stock Price ◽  
Specific Information ◽  
Stock Price Synchronicity ◽  
Playing Field ◽  
Information Advantage ◽  
Private Information Acquisition

SYNOPSIS Against the backdrop of the Chinese Directive 40 (China's Reg FD) issued in 2007 as an attempt to curb insider trading and to level the information playing field, this study investigates whether analysts' private information acquisition influences the extent to which firm-specific information is impounded into stock prices, i.e., stock price synchronicity, and how the restrictions on selective disclosures imposed by Directive 40 have shaped the relationship between analyst information acquisition and synchronicity. Using a pre-Directive 40 sample, we show that synchronicity is negatively related to analysts' private information acquisition, which provides support for the “information advantage” argument of analysts' information production. However, the ability of analysts' private information acquisition in improving firm-specific information incorporated into stock price is mitigated post-Directive 40 due to a restriction on selective disclosures and/or private communication. Moreover, we find that this regulatory impact varies for firms being followed by affiliated analysts versus non-affiliated analysts. JEL Classifications: G14; G15; G17; G18.

Information Structure, Trading Behavior and Stock Prices in the Thai Market

1998 ◽  
Vol 01 (03) ◽  
pp. 321-353 ◽  
Author(s):  
Anya Khanthavit
Keyword(s):  
Institutional Investors ◽  
Stock Prices ◽  
Information Structure ◽  
Stock Return ◽  
Emerging Market ◽  
Individual Investors ◽  
Herd Behavior ◽  
Trading Behavior ◽  
Foreign Investors ◽  
Noisy Information

This study examines the information and trading behavior of investors in the Thai market. This market is an important emerging market in the Pacific Rim, whose structure is different from that of a more developed market. We propose a vector autoregression model to describe and test action and reaction of the portfolio reallocation of investors and the movement of stock prices over time. Using daily market data from January 3, 1995 to October 27 1997 , this study finds that, in the Thai market, the foreign investors bought stocks when prices had risen. This strategy was consistent with a positive autocorrelation in the stock return. The local individual investors bought stocks when prices had fallen, while the local institutional investors disregarded past price changes. These two investor groups also exhibited herd behavior of both informational cascades and interpersonal communications types. They followed each other and reacted negatively to an innovation in the stock return. It is interesting to find that the foreign investors brought new information into the market. The local individual and local institutional investors brought in noise, but the explanatory share of this noisy information in the stock volatility was small. So, the study concludes that the volatility in the Thai market was not excessive.

Analysts’ Incentives to Produce Industry-Level versus Firm-Specific Information

2011 ◽  
Vol 46 (3) ◽  
pp. 757-784 ◽  
Author(s):  
Mark H. Liu
Keyword(s):  
Stock Returns ◽  
Idiosyncratic Volatility ◽  
Specific Information ◽  
Investment Performance ◽  
Absolute Value ◽  
Industry Level ◽  
Level Information ◽  
Level Versus ◽  
The Absolute

AbstractUsing stock returns around recommendation changes to measure the information produced by analysts, I find that analysts produce more firm-specific than industry-level information. Analysts produce more firm-specific information on stocks with higher idiosyncratic return volatilities. The amount of industry information produced by analysts increases with the absolute value of the stock’s industry beta and decreases with the stock’s idiosyncratic volatility. Other stocks in the industry also respond to the recommendation change, and the magnitude of the response increases with the absolute value of the industry beta of the recommended stock and that of other stocks in the industry. I also offer results on how investors may use analyst research more effectively and potentially improve their investment performance.

Strategic Deviation and Stock Return Synchronicity

2018 ◽  
Vol 36 (1) ◽  
pp. 172-194
Author(s):  
Kangtao Ye ◽  
Jenny Xinjiao Guan ◽  
Bo Zhang
Keyword(s):  
Resource Allocation ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Return ◽  
Price Formation ◽  
Specific Information ◽  
Strategic Positioning ◽  
The Relationship ◽  
Industry Peers

We examine the effect of strategic deviation on the relative amount of firm-specific information incorporated into stock prices, measured by stock return synchronicity. Strategic deviation is conceptualized as the extent to which the pattern of a firm’s resource allocation deviates from that of its industry peers. We find that strategic deviation is negatively associated with stock return synchronicity. Using a path analysis, we document that firms following deviant strategy issue more frequent managerial forecasts and have a higher level of block ownership than nondeviant firms, and that both managerial forecasts and block ownership partially mediate the relationship between strategic deviation and stock return synchronicity. Our study contributes to accounting and finance literature by documenting the role of firms’ strategic positioning in the stock price-formation process.

scholarly journals Stock Price Synchronicity and Current and Potential Credit Ratings

2019 ◽  
Vol 11 (10) ◽  
pp. 1
Author(s):  
Bruno Figlioli ◽  
Rafael Moreira Antônio ◽  
Fabiano Guasti Lima
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Credit Rating ◽  
Stock Exchange ◽  
Credit Ratings ◽  
Relevant Information ◽  
General Information ◽  
Specific Information ◽  
Stock Price Synchronicity ◽  
Risk Levels

This study examines whether the stock prices reflet the relevant information on the companies´current and potential credit ratings. This investigation was carried out from the construct of stock price synchronicity, that is, the more the stock prices reflect the specific information of a certain company, the less the synchronicity of these prices in relation to the market general information tends to be. It would imply that the stock prices tend to be more informative on the companies´potential in generating future economic benefit and on their risk levels. For carrying out this study, information on the companies which have their shares listed at the Brazilian Stock Exchange (Brazil, Stock Exchange and Over-the-counter – B3) from 2010 to 2015 were analyzed. The results obtained point that the stock prices not only embody information on the alterations of the companies´s current credit ratings regarding the upgrade, but also reflect, with certain antecipation, the potential credit ratings. Nevertheless, the results indicate that not every credit rating class is associated with relevant information for the capital market.

scholarly journals IFRS, synchronicity, and financial crisis: the dynamics of accounting information for the Brazilian capital market

2017 ◽  
Vol 28 (75) ◽  
pp. 326-343 ◽  
Author(s):  
Bruno Figlioli ◽  
Sirlei Lemes ◽  
Fabiano Guasti Lima
Keyword(s):  
Financial Crisis ◽  
Financial Reporting ◽  
Stock Prices ◽  
Economic Value ◽  
Accounting Information ◽  
Relevant Information ◽  
Informational Content ◽  
Specific Information ◽  
Market Information ◽  
Cross Sectional

ABSTRACT This study aims is to investigate the synchronicity levels of shares traded on the spot market of the São Paulo Stock, Commodities , and Futures Exchange (BM&FBOVESPA) in relation to the accounting convergence process towards International Financial Reporting Standards (IFRS) in Brazil. The term synchronicity refers to the amount that company-specific information and market information are reflected in stock prices. The more share prices reflect company-specific information rather than market information, the greater the informational content of these prices will be in terms of representing the economic value of a particular company. For this investigation, information on companies and shares from 2005 to 2015 was collected, excluding the financial sector. The data were analyzed using cross-sectional and panel regressions. The results indicate a reduction in the synchronicity levels of stocks in the period of full adoption of IFRS in Brazil from 2010 onwards. From 2008 to 2009, which includes the partial adoption of IFRS in Brazil, statistically significant results were not found for the synchronicity levels of shares. However, for times of financial crisis, evidence was found of a reduction in the relevance of accounting information even with the adoption of international accounting standards. The results obtained for the Brazilian context do not support the idea that the adoption of IFRS necessarily causes an increase in the informational content of financial statements and that relevant information is consequently reflected in stock prices.

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