Economics at your fingertips  

The R2 Puzzle

Paulo Alves (), Ken Peasnell and Paul Taylor
Additional contact information
Ken Peasnell: Lancaster University
Paul Taylor: Lancaster University

No 3, Working Papers de Gestão (Management Working Papers) from Católica Porto Business School, Universidade Católica Portuguesa

Abstract: Previous research has argued that the degree of co-movement of stock returns (the R² of a market regression) at country-level can be explained by the interaction of firmspecific and market-wide information. The R² measure has been used to investigate a number of issues of potentially great importance to accounting, such as whether countries with poor corporate governance regimes and weak legal protection of private property rights are more likely to have poor information environments or to assess the informativeness of prices. To date, only limited research has been carried out to assess the reliability of an information interpretation of the R² measure at a firm-level within a country rather than at an aggregate country level. In this paper we now examine the properties of stock returns co-movement at the firm-level within two countries, UK and USA, thereby being able to filter out certain extraneous factors that could arise in cross-country settings. We analyse the performance of this overall measure by triangulating it with other information-related measures which previous research has suggested capture partial aspects of the information environment. We find some serious flaws in the methodology and our findings suggest that when using it at firm-level, it may be being driven by other factors related to uninformed trading.

Keywords: Information; ; firm-specific information; market-wide information; volatility; disclosures; comovement (search for similar items in EconPapers)
Pages: 55 pages
Date: 2009-01
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... 0-%20R2%20puzzle.pdf First version (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers de Gestão (Management Working Papers) from Católica Porto Business School, Universidade Católica Portuguesa Contact information at EDIRC.
Bibliographic data for series maintained by Ricardo Goncalves ().

Page updated 2023-06-15
Handle: RePEc:cap:mpaper:032009