Precision of information in daily stock prices and cost of equity
|Speaker:||Eli Amir, London Business School|
|Date:||Wednesday 18 June 2014|
|Location:||Northcote House Council Chamber|
The precision of the information reflected in stock prices can reduce investors’ uncertainty
about the value of the firm. We estimate the precision of information in daily stock returns,
and show that when the information impounded into daily stock returns is more precise,
expected returns are lower. Also, public disclosures increase the precision of information in
prices, and stock returns during quarterly earnings announcement days contain more precise
information than those during non announcement days. But, regardless of the source of the
information, public or private, after controlling for information asymmetry, we find that the
average precision of information in prices is associated with lower expected stock returns.
Our findings are consistent with the argument that increasing the precision of the information
available to investors decreases the cost of equity.