publication . Article . Other literature type . 2003

Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?

Artyom Durnev; Randall Morck; Bernard Yeung; Paul Zarowin;
Open Access
  • Published: 01 Dec 2003 Journal: SSRN Electronic Journal (eissn: 1556-5068, Copyright policy)
  • Publisher: Elsevier BV
Abstract
Roll [1988] observes low R 2 statistics for common asset pricing models due to vigorous firm-specific return variation not associated with public information. He concludes that this implies “either private information or else occasional frenzy unrelated to concrete information” [p. 56]. We show that firms and industries with lower market model R 2 statistics exhibit higher association between current returns and future earnings, indicating more information about future earnings in current stock returns. This supports Roll’s first interpretation: higher firm-specific return variation as a fraction of total variation signals more information-laden stock prices and...
Subjects
Medical Subject Headings: health care economics and organizations
free text keywords: Economics and Econometrics, Accounting, Finance, Stock market bubble, business.industry, business, Non-qualified stock option, Economics, Stock exchange, Restricted stock, Stock obsolescence, Capital asset pricing model, Stock dilution, Market maker
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publication . Article . Other literature type . 2003

Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?

Artyom Durnev; Randall Morck; Bernard Yeung; Paul Zarowin;