Identifying Price Informativeness / Eduardo Dávila, Cecilia Parlatore.

Format:

Book

Author/Creator:

Dávila, Eduardo.

Contributor:

National Bureau of Economic Research.

Parlatore, Cecilia.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25210.

NBER working paper series no. w25210

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We show that outcomes (parameter estimates and R-squareds) of regressions of prices on fundamentals allow us to recover exact measures of the ability of asset prices to aggregate dispersed information. Formally, we show how to recover absolute and relative price informativeness in dynamic environments with rich heterogeneity across investors (regarding signals, private trading needs, or preferences), minimal distributional assumptions, multiple risky assets, and allowing for stationary and non-stationary asset payoffs. We implement our methodology empirically, finding stock-specific measures of price informativeness for U.S. stocks. We find a right-skewed distribution of price informativeness, measured in the form of the Kalman gain used by an external observer that conditions its posterior belief on the asset price. The recovered mean and median are 0.05 and 0.02 respectively. We find that price informativeness is higher for stocks with higher market capitalization and higher trading volume.

Notes:

Print version record

November 2018.