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http://hdl.handle.net/2451/26537
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| Title: | Information Asymmetry about the Firm and the Permanent Price Impact of
Trades: Is there a Connection? |
| Authors: | Saar, Gideon
Yu, Lei |
| Issue Date: | Oct-2001 |
| Series/Report no.: | FIN-01-009 |
| Abstract: | Spread decomposition and variance decomposition methodologies have been
developed and used in the literature to obtain measures of information
asymmetry about firms. We examine the relation between these market
microstructure measures and information asymmetry about the future cash
flows of firms. First, to test whether differences in information
asymmetry are sufficient to generate differences in the estimated
measures, we examine a large cross-section of stocks employing various
proxies for uncertainty about future cash flows or informativeness of
prices. We Þnd that the market microstructure measures do not
consistently reflect uncertainty about future cash flows or relate to
the informativeness of prices in a manner that is compatible with their
use as proxies for information asymmetry. Second, to test whether
changes in information asymmetry about the firm are necessary for the
estimated measures to change, we conduct an event study of the Russell
1000 index reconstitution. We find that the information asymmetry
measures change around the event despite the fact that Russell 1000
membership is based on market capitalization and therefore the event is
not associated with any change in private information about the firms. |
| URI: | http://hdl.handle.net/2451/26537 |
| Appears in Collections: | Finance Working Papers
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