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Information Quality and Market Efficiency

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Author Info
Ho, Thomas S. Y.
Michaely, Roni
Abstract

The purpose of this paper is to analyze the optimal individual behavior in acquiring information and to determine the amount of information incorporated in a stock at equilibrium, in the presence of a cost schedule in acquiring information. Our paper shows that at equilibrium the cost to acquire information that is not already incorporated in the price depends only on the representative investor's risk preferences. It follows that the marginal information costs are the same across all stocks at equilibrium even though the stock's information costs schedules may differ. This suggests that the prices of small stocks may not incorporate all publicly available information. This paper also provides empirical evidence that newspapers' publication of publicly available information can affect the stock prices.

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File URL: http://journals.cambridge.org/abstract_S0022109000012928
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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 23 (1988)
Issue (Month): 01 (March)
Pages: 53-70
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:23:y:1988:i:01:p:53-70_01

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  1. Michael J. Brennan & Anjan V. Thakor, 2004. "Shareholder Preferences and Dividend Policy," Finance 0411017, EconWPA. [Downloadable!]
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  2. Laivi Laidroo, 2008. "Measuring Public Announcements’ Disclosure Quality on Tallinn, Riga and Vilnius Stock Exchanges," Working Papers 181, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  3. Terry Richardson & David Peterson, 1997. "Causes of cross-autocorrelation in security returns: Transaction costs versus information quality," Journal of Economics and Finance, Springer, vol. 21(3), pages 29-39, September. [Downloadable!] (restricted)
  4. Riccardo Ferretti & Francesco Pattarin, 2008. "Is public information really public? The role of newspapers," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08013, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi". [Downloadable!]
  5. David Hirshleifer & TYLER G. SHUMWAY, 2004. "Good Day Sunshine: Stock Returns and the Weather," Finance 0412004, EconWPA. [Downloadable!]
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  6. David Hirshleifer & SONYA SEONGYEON LIM & Siew Hong Teoh, 2004. "Disclosure to an Audience with Limited Attention," Game Theory and Information 0412002, EconWPA. [Downloadable!]
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  7. William H. Branson & Dwight M. Jaffee, 1992. "The Globalization of Information and Capital Mobility," NBER Working Papers 3496, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Tung Liang Liao & Mei-Chu Ke & Hsiang-Tai Yu, 2005. "Anomalous price behaviour around stock repurchases on the Taiwan stock exchange," Applied Economics Letters, Taylor and Francis Journals, vol. 12(1), pages 29-39, January. [Downloadable!] (restricted)
  9. David Hirshleifer & KEWEI HOU & Siew Hong Teoh & YINGLEI ZHANG, 2004. "Do Investors Overvalue Firms With Bloated Balance Sheets?," Finance 0412001, EconWPA. [Downloadable!]
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  10. Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 2004. "Feedback and the Success of Irrational Investors," Working Paper Series 2004-8, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
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  11. Hirshleifer, David & Lim, Sonya S. & Teoh, Siew Hong, 2004. "Disclosure to a Credulous Audience: The Role of Limited Attention," MPRA Paper 5198, University Library of Munich, Germany. [Downloadable!]
  12. Hirshleifer, David & Teoh, Siew Hong, 2005. "Limited Investor Attention and Stock Market Misreactions to Accounting Information," Working Paper Series 2005-24, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  13. Hirshleifer, David & Lim, Sonya Seongyeon & Teoh, Siew Hong, 2006. "Driven to distraction: Extraneous events and underreaction to earnings news," MPRA Paper 3110, University Library of Munich, Germany, revised 16 Apr 2007. [Downloadable!]
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  14. Daxue Wang, 2006. "Cross-Autocorrelation of Dual-Listed Stock Portfolio Returns: Evidence from the Chinese Stock Market," Computing in Economics and Finance 2006 182, Society for Computational Economics. [Downloadable!]
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