Does Information Asymmetry Impede Market Efficiency? Evidence from Analyst Coverage

Keming Li

Journal of Banking & Finance, 2020, vol. 118, issue C

Abstract: This paper presents evidence that information asymmetry increases equity misvaluation by showing the impact of analyst coverage on misvaluation. To establish the causality, I use two exogenous events (broker closures and mergers), as well as an instrumental variable approach. The identification strategies indicate that there is a negative causal effect of analyst coverage on equity misvalutaion. The evidence is consistent with the hypothesis that information environment can cause investors to use their perceived value in cash flow and discount rate to estimate their perceived equity prices, which deviate from intrinsic value.

Keywords: Equity misvalution; Information asymmetry; Analyst coverage (search for similar items in EconPapers)
JEL-codes: G12 G14 G41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301229

DOI: 10.1016/j.jbankfin.2020.105856

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