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What Moves Stock Prices? The Roles of News, Noise, and Information

Author

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  • Jonathan Brogaard
  • Thanh Huong Nguyen
  • Talis J Putnins
  • Eliza Wu

Abstract

We develop a return variance decomposition model to distinguish the roles of different types of information and noise in stock price movements. We disentangle four components: noise, private firm-specific information revealed through trading, firm-specific information revealed through public sources and market-wide information. Overall, we find that 31$\%$ of the return variance is from noise, 24$\%$ from private firm-specific information, 37$\%$ from public firm-specific information and 8$\%$ from market-wide information. Since the mid-1990s, there has been a dramatic decline in noise and an increase in firm-specific information, consistent with increasing market efficiency.The Internet Appendix that accompanies this paper can be obtained here: https://bit.ly/3FcV9UR

Suggested Citation

  • Jonathan Brogaard & Thanh Huong Nguyen & Talis J Putnins & Eliza Wu, 2022. "What Moves Stock Prices? The Roles of News, Noise, and Information," The Review of Financial Studies, Society for Financial Studies, vol. 35(9), pages 4341-4386.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:9:p:4341-4386.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab137
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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