Identifying Price Informativeness - Cecilia Parlatore
Speaker : Cecilia Parlatore
This paper shows how to identify and estimate price informativeness. Starting from i) an asset pricing equation and ii) a stochastic process for asset payoffs, we show how to use regressions of changes in asset prices on changes in asset payoffs to recover an exact measure of price informativeness in a large class of environments. We implement our methodology empirically computing a panel of stock-specific measures of price informativeness for U.S. stocks between 1980 and 2017. In the cross section, we find that large stocks, stocks that with high turnover, and stocks with high institutional ownership have higher price informativeness. In the time series, we find that the median, mean, and standard deviation of the distribution of price informativeness have steadily increased since the mid 1980’s.