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The "Firm-Specific Return Variation": A Measure Of Price Informativeness Or Information Asymmetry?

Author

Listed:
  • RADU BURLACU

    (CERAG UMR CNRS 5820, University "Pierre Mendès-France", 150 rue de la Chimie, 38040 Grenoble Cedex 9, France)

  • PATRICE FONTAINE

    (CERAG UMR CNRS 5820, University "Pierre Mendès-France", 150 rue de la Chimie, 38040 Grenoble Cedex 9, France)

  • SONIA JIMENEZ-GARCÈS

    (CERAG UMR CNRS 5820, University "Pierre Mendès-France", 150 rue de la Chimie, 38040 Grenoble Cedex 9, France)

Abstract

This paper investigates the relevancy of the "Firm-Specific Return Variation" (FSRV) as a measure of stock price informativeness. For this purpose, we study the link between FSRV and stock excess returns on the American market over the period 1986–2001. After controlling for size effects, we find a negative and highly significant impact of FSRV on stock returns. The link between FSRV and stock excess returns is robust to asset pricing models and does not capture systematic, size or "book-to-market" (BM) effects. Based on rational expectations equilibrium (REE) models considering asymmetrically informed investors, we suggest that FSRV is a good proxy for price informativeness. Common stocks with higher specific return variation have lower information-risk premium, thus lower expected returns.

Suggested Citation

  • Radu Burlacu & Patrice Fontaine & Sonia Jimenez-Garcès, 2005. "The "Firm-Specific Return Variation": A Measure Of Price Informativeness Or Information Asymmetry?," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-20.
    • Handle: RePEc:wsi:afexxx:v:01:y:2005:i:01:n:s2010495205500041
    DOI: 10.1142/S2010495205500041
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    More about this item

    Keywords

    Idiosyncratic risk; private information; information-risk premium; rational expectations models; G11; G12; G14;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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