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Identifying Price Informativeness

Eduardo Dávila¹; Cecilia Parlatore²

¹ Yale University and NBER · ² Stern School of Business, New York University and NBER , , and CEPR

Abstract We identify and estimate price informativeness, a necessary step in testing theories of information aggregation. Starting from a pricing equation and a stochastic process for payoffs, we show how to recover relative price informativeness from regressions of asset price changes on changes in payoffs. Applying our identification results, we estimate a panel of stock-specific measures of informativeness for U.S. stocks. In the cross-section, large stocks with high turnover, idiosyncratic volatility, institutional ownership, and analyst coverage have higher informativeness. In the time series, the median, mean, and standard deviation of the distribution of informativeness have steadily increased since the mid-1980s.

DOI

10.1093/rfs/hhaf051

Volume

39 (5)

Pages

1267-1309

Language

en

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BibTeX

Sources

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