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Asymmetric Information in the Stock Market: Economic News and Co-movement

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Author Info
Albuquerque, Rui
Vega, Clara

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Abstract

We analyze the effect that real-time domestic and foreign news about fundamentals have on the correlation of stock returns of a small open economy, Portugal, and a large open economy, the U.S. We also study the role of public and private information in the price formation process in the U.S. and Portuguese stock markets. First, and consistent with our theoretical model, we find that U.S. macroeconomic news and Portuguese earnings news do not affect the cross-country stock market correlation, whereas Portuguese macroeconomic news lowers the cross-country stock market correlation. Second, we find that U.S. public information affects Portuguese stock market returns, but this effect is diminished when U.S. stock market returns are included in the regression; we provide evidence in the paper that this effect does not derive from contagion as commonly accepted. Finally, public information news in the U.S. is associated with increased liquidity, while the effect in Portugal depends on the type of news releases.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5598.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5598

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Related research
Keywords: contagion; information spillovers; international equity returns; private information; public news announcements;

Find related papers by JEL classification:
F3 - International Economics - - International Finance
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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