Does individual investors’ online search activities reduce information asymmetry? Evidence from stock exchanges’ comment letters in China

Weijia Hu and Xiangfei Fu

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 3, 582-602

Abstract: Commonly treated as ‘dumb noise traders’, individual investors are widely known as the group who are unaware, unsophisticated, and have low financial literacy. Their trading behavior in the capital markets is often assumed away by previous literature, let alone their information demand and the impacts on capturing the market pricing dynamics. In this study, we build a framework for understanding the information demand of individual investors and analyze their information role using the releases of comment letters in China as the setting. We find that: (a) individual investors’ information demand is high when there is an inferior information environment; (b) individual investors’ online search behavior dampens negative shocks to unexpected events. In an additional analysis, we find that the information searching of investors has abating effects on the cost of information remediation.

Date: 2022
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DOI: 10.1080/16081625.2020.1754248

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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