Firm size, information acquisition and price efficiency
We present a model in a competitive market where traders choose between a small and a large firm to acquire costly private information, but they also obtain free public information by observing equilibrium share prices. Our major finding is the existence of a noisy rational expectation competitive equilibrium, in which there are more informed traders of the large firm than those of the small firm. As a result, share prices of the large firm are more informative than those of the small firm. Our empirical study supports the analytical results. By using a bivariate vector autoregressive regression, we are able to conduct a variance decomposition of share prices for different size portfolios. We find that prices of large-size portfolios are more informative because non-value-related price shocks are less important in driving price changes of large-size portfolios than in the case of small-size portfolios.
Volume (Year): 12 (2012)
Issue (Month): 10 (October)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:12:y:2012:i:10:p:1599-1614. 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 references are entirely missing, you can add them using this form.