THE "FIRM-SPECIFIC RETURN VARIATION": A MEASURE OF PRICE INFORMATIVENESS OR INFORMATION ASYMMETRY?

Radu Burlacu, Patrice Fontaine () and Sonia Jimenez-Garcès
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Radu Burlacu: CERAG UMR CNRS 5820, University "Pierre Mendès-France", 150 rue de la Chimie, 38040 Grenoble Cedex 9, France
Patrice Fontaine: CERAG UMR CNRS 5820, University "Pierre Mendès-France", 150 rue de la Chimie, 38040 Grenoble Cedex 9, France
Sonia Jimenez-Garcès: CERAG UMR CNRS 5820, University "Pierre Mendès-France", 150 rue de la Chimie, 38040 Grenoble Cedex 9, France

Annals of Financial Economics (AFE), 2005, vol. 01, issue 01, 1-20

Abstract: This paper investigates the relevancy of the "Firm-Specific Return Variation" (FSRV) as a measure of stock price informativeness. For this purpose, we study the link between FSRV and stock excess returns on the American market over the period 1986–2001. After controlling for size effects, we find a negative and highly significant impact of FSRV on stock returns. The link between FSRV and stock excess returns is robust to asset pricing models and does not capture systematic, size or "book-to-market" (BM) effects. Based on rational expectations equilibrium (REE) models considering asymmetrically informed investors, we suggest that FSRV is a good proxy for price informativeness. Common stocks with higher specific return variation have lower information-risk premium, thus lower expected returns.

Keywords: Idiosyncratic risk; private information; information-risk premium; rational expectations models; G11; G12; G14 (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1142/S2010495205500041

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