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Rumors in the sky: Corporate rumors and stock price synchronicity

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  • Cai, Wenwu
  • Quan, Xiaofeng
  • Zhu, Zhenmei (Judy)

Abstract

Using hand-collected rumor clarification announcements from Chinese listed firms to identify corporate rumors, we find that rumored firms have lower stock price synchronicity (R2) than do firms without rumors. Channel analyses reveal that rumors reduce stock price synchronicity through elevating investor sentiment rather than stimulating informed trading. Additionally, the negative association between corporate rumors and stock price synchronicity is more evident among firms with more individual investors and higher information opacity. Moreover, corporate rumors are associated with higher analyst forecast errors and forecast dispersion. Overall, our evidence suggests that corporate rumors reduce stock price synchronicity by increasing investor irrationality.

Suggested Citation

  • Cai, Wenwu & Quan, Xiaofeng & Zhu, Zhenmei (Judy), 2023. "Rumors in the sky: Corporate rumors and stock price synchronicity," International Review of Financial Analysis, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finana:v:88:y:2023:i:c:s1057521923001990
    DOI: 10.1016/j.irfa.2023.102683
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    More about this item

    Keywords

    Corporate rumors; Stock price synchronicity; Investor irrationality;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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