Information arrival, changes in R-square and pricing asymmetry of corporate news

Louis T.W. Cheng; T.Y. Leung; Wayne Yu

doi:10.1016/j.iref.2014.03.004

Author(s)

Louis T.W. Cheng
T.Y. Leung
Wayne Yu

Detail(s)

Original language	English
Pages (from-to)	67-81
Journal / Publication	International Review of Economics and Finance
Volume	33
Online published	24 Mar 2014
Publication status	Published - Sept 2014
Externally published	Yes

Link(s)

DOI	DOI https://doi.org/10.1016/j.iref.2014.03.004 Final Published version
	Check@CityULib
Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-84898901193&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(fd8447b0-5b51-4d53-bef0-fe395a54f3e5).html

Abstract

Previous research on R-square has focused on the cross-sectional effects of the level of R-square and the results are mixed. We argue that changes in R-square can capture how new information is incorporated into stock prices. We examine the changes in R-square and stock price synchronicity upon compliance disclosures of earnings and regulatory reprimanding disclosures of "special treatment" status in China. Our results show that upon information arrival, R-square decreases because of the increase in firm-level information from the announcements, a result that is consistent with our hypothesis. Moreover, the market is more reactive in pricing bad rather than good news.