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Idiosyncratic return variation: Firm-specific information or noise?

Yaruo Shu and Sungbin Sohn

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: There has been a long debate on the interpretation of idiosyncratic return variation. We inform this debate by examining the extent to which stock return synchronicity is associated with post-earnings announcement drift (PEAD) in China. We find that firms with higher synchronicity exhibit less pronounced PEAD and that this negative association weakens for firms with high institutional ownership. The findings suggest that in the Chinese stock markets, where retail investors are in the majority, idiosyncratic returns reflect noise rather than firm-specific information on average, and institutional investors play a role in reducing noise in idiosyncratic returns.

Keywords: Stock return synchronicity; Price informativeness; Post-earnings announcement drift; Institutional ownership (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612322001015

DOI: 10.1016/j.frl.2022.102789

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