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

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  • Albuquerque, Rui
  • Vega, Clara

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

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Cited by:
  1. Percival S. Gabriel, 2013. "How Newspaper-Article-Events, Other Stock Market Indices, and the Foreign Currency Rate Affect the Philippine Stock Market," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(4), pages 423-444, April.
  2. Jan Hanousek & Evzen Kocenda & Ali M. Kutan, 2008. "The Reaction of Asset Prices to Macroeconomic Announcements in New EU Markets: Evidence from Intraday Data," CERGE-EI Working Papers wp349, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Jan Hanousek & Evžen Kočenda, 2010. "Effect of Intraday Information Flow on the Emerging European Stock Markets," Politická ekonomie, University of Economics, Prague, vol. 2010(4), pages 435-457.

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