Measuring firm-specific informational efficiency without conditioning on a public announcement
We exploit the availability of active single-stock futures on India's National Stock Exchange (NSE) to provide estimates of overall informational efficiency, without conditioning on a public announcement. The key is the estimation of the primitive parameters of an asset pricing model with private information and noise. The variance--covariance parameters governing futures prices and terminal values can be inverted to obtain the Maximum Likelihood Estimators (MLEs) of the precision of private information and the variance of liquidity motivated trades. The Signal-to Signal-plus-Noise (SSN) ratio -- our measure of overall informational efficiency -- is a function of these primitive parameters. Our primary findings show that there is considerable variation across firms in these parameters despite only large active firms being available for futures trading. We also examine the cross-sectional relationship of this measure of informational efficiency and corporate governance. Overall informational efficiency increases in promoters’ and foreign institutional investors’ shareholding, and if the board of directors has a majority that is independent, and decreases if the chairman of the board is also the CEO, and if overall trading activity is fragmented across domestic and international markets. The NIFTY index shows a higher SSN ratio than for any of the firms. This is consistent with the idea that less manipulability is associated with greater informational efficiency.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2012)
Issue (Month): 21 (November)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Easley, David & Kiefer, Nicholas M & O'Hara, Maureen, 1997. "One Day in the Life of a Very Common Stock," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 805-35.
- Landsman, Wayne R. & Maydew, Edward L. & Thornock, Jacob R., 2012. "The information content of annual earnings announcements and mandatory adoption of IFRS," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 34-54.
- Cho, Jin-Wan & Krishnan, Murugappa, 2000. "Prices as Aggregators of Private Information: Evidence from S&P 500 Futures Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(01), pages 111-126, March.
- Foster, F Douglas & Viswanathan, S, 1995. "Can Speculative Trading Explain the Volume-Volatility Relation?," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 379-96, October.
- Easley, David, et al, 1996. " Liquidity, Information, and Infrequently Traded Stocks," Journal of Finance, American Finance Association, vol. 51(4), pages 1405-36, September.
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:22:y:2012:i:21:p:1799-1809. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.