Volatility and informativeness

Eduardo Davila and Cecilia Parlatore

Journal of Financial Economics, 2023, vol. 147, issue 3, 550-572

Abstract: This paper studies the relation between volatility and informativeness in financial markets. We identify two channels (noise-reduction and equilibrium-learning) that determine the volatility-informativeness relation. When informativeness is sufficiently high (low), volatility and informativeness positively (negatively) comove in equilibrium. We identify conditions on primitives that guarantee that volatility and informativeness comove positively or negatively. We introduce the comovement score, a statistic that measures the distance of a given asset to the positive/negative comovement regions. Empirically, comovement scores (i) have trended downwards over the last decades, (ii) are positively related to value and idiosyncratic volatility and negatively to size and institutional ownership.

Keywords: Price informativeness; Price volatility; Learning; Information aggregation; Comovement score (search for similar items in EconPapers)
JEL-codes: D82 D83 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Volatility and Informativeness (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:3:p:550-572

DOI: 10.1016/j.jfineco.2022.12.005

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