Skip navigation

Does Greater Firm-specific Return Variation Mean More or Less Informed Stock Pricing?

Authors: Durnev, Artyom
Morck, Randall
Yeung, Bernard
Zarowin, Paul
Issue Date: 21-May-2001
Series/Report no.: Paul Zarowin-05
Abstract: Roll (1988) observes low R2 statistics for common asset pricing models due to vigorous firms-specific returns variation not associated with public information. He concludes (p. 56) that this implies “either private information or else occasional frenzy unrelated to concrete information.” We show that firms and industries with lower market model R2 statistics exhibit higher association between current returns and future earnings, indicating more information about future earnings in current stock returns. This supports Roll’s first interpretation – higher firms-specific returns variation as a fraction of total variation signals more information-laden stock prices and, therefore, more efficient stock markets.
Appears in Collections:Accounting Working Papers

Files in This Item:
File Description SizeFormat 
SSRN-id272287.pdf485.69 kBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.