Event

Identifying Price Infomativeness

  • Conférencier  Cecilia Parlatore – New York University

  • Lieu

    Luxembourg School of Finance JFK Building 29,Avenue J.F Kennedy L-1855 Luxembourg Ground Floor, Nancy Room

    LU

  • Thème(s)
    Finance

Abstract

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.