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Financial derivatives, analyst forecasts, and stock price synchronicity: Evidence from an emerging market

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  • Su, Kun
  • Zhang, Miaomiao
  • Liu, Chengyun

Abstract

Against the backdrop of the role of financial derivatives in the recent financial crisis, this paper aims to identify the effects of financial derivative usage on the amount of firm-specific information incorporated into stock prices, as measured by stock price synchronicity (SPS), using an emerging market from 2009 to 2019. We find strong evidence consistent with this information asymmetry view. Specifically, our results exhibit that financial derivative usage deters firm-specific information into stock prices, thus increasing SPS. Further analyses indicate that financial derivative usage indirectly affects SPS via analyst forecasts (i.e., analyst forecast accuracy, analyst forecast dispersion, analyst forecast optimism, and analyst following). In addition, our results imply that both the economic complexity and accounting complexity of financial derivatives affect SPS positively. The results are robust to a batch of robustness tests. The findings not only add to the literature on financial derivative usage and SPS but also have policymaking implications for the emerging market.

Suggested Citation

  • Su, Kun & Zhang, Miaomiao & Liu, Chengyun, 2022. "Financial derivatives, analyst forecasts, and stock price synchronicity: Evidence from an emerging market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:intfin:v:81:y:2022:i:c:s1042443122001433
    DOI: 10.1016/j.intfin.2022.101671
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    More about this item

    Keywords

    Financial derivatives; Analyst forecasts; Stock price synchronicity; Information asymmetry; China;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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