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Does High Stock Return Synchronicity Indicate High or Low Price Informativeness? Evidence from a Regulatory Experiment

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  • Shuo Kan
  • Stephen Gong

Abstract

We investigate the link between stock return synchronicity and price informativeness by exploiting the Regulation SHO pilot program, which removed short‐selling price tests for randomly selected stocks (“pilot stocks”) in May 2005. A difference‐in‐differences analysis reveals that relative to non‐pilot stocks, pilot stocks saw a significantly larger increase in both price informativeness and return synchronicity when the pilot program started, but such difference disappeared when Regulation SHO removed the short‐selling price tests for all stocks in July 2007. The results suggest that high return synchronicity reflects high, rather than low price informativeness.

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  • Shuo Kan & Stephen Gong, 2018. "Does High Stock Return Synchronicity Indicate High or Low Price Informativeness? Evidence from a Regulatory Experiment," International Review of Finance, International Review of Finance Ltd., vol. 18(4), pages 523-546, December.
    • Handle: RePEc:bla:irvfin:v:18:y:2018:i:4:p:523-546
    DOI: 10.1111/irfi.12157
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    Cited by:

    1. Doan, Anh-Tuan & Lin, Kun-Li, 2022. "Bank ownership and stock price informativeness. Does politics matter?," International Review of Financial Analysis, Elsevier, vol. 79(C).
    2. Li, Fengyun & Petsas, Iordanis & Cai, Jinghan, 2020. "Corporate events, return synchronicity and price efficiency," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    3. Husam Aldamen & Keith Duncan & Simone Kelly & Ray McNamara, 2020. "Corporate governance and family firm performance during the Global Financial Crisis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1673-1701, June.
    4. Persakis, Antonios & Iatridis, George Emmanuel, 2023. "How economic uncertainty influences the performance of investor perceptions and behavior," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    5. Pham, Son Duy & Nguyen, Thao Thac Thanh & Do, Hung Xuan, 2022. "Effect of futures trading on the liquidity of underlying stocks: Evidence from Vietnam," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    6. Li, Mingsheng & Liu, Desheng & Peng, Hongfeng & Zhang, Luxiu, 2020. "Does low synchronicity mean more or less informative prices? Evidence from an emerging market," Journal of Financial Stability, Elsevier, vol. 51(C).
    7. Abedifar, Pejman & Bouslah, Kais & Zheng, Yeliangzi, 2021. "Stock price synchronicity and price informativeness: Evidence from a regulatory change in the U.S. banking industry," Finance Research Letters, Elsevier, vol. 40(C).
    8. Tianyu Cai & Lixiong Guo & Yongxian Tan, 2024. "Short seller monitoring and real earnings management," The Financial Review, Eastern Finance Association, vol. 59(1), pages 203-225, February.
    9. Christina Bui, 2018. "Bank Regulation and Financial Stability," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 5-2018, January-A.

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