Precision of information in daily stock prices and cost of equity

Accounting

Speaker:Eli Amir, London Business School
Website: https://www.london.edu/facultyandresearch/faculty/search.do?uid=eamir
Date: Wednesday 18 June 2014
Time: 14:30
Location: Northcote House Council Chamber

Further details

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.