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Volatility and informativeness
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DOI：10.1016/j.jfineco.2022.12.005.png)
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Abstract
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This paper studies the relation between volatility and informativeness in financial markets. We identify two channels (noise-reduction and equilibrium-learning) that determine the volatility-informativeness relation. When informativeness is sufficiently high (low), volatil-ity and informativeness positively (negatively) comove in equilibrium. We identify condi-tions on primitives that guarantee that volatility and informativeness comove positively or negatively. We introduce the comovement score, a statistic that measures the distance of a given asset to the positive/negative comovement regions. Empirically, comovement scores (i) have trended downwards over the last decades, (ii) are positively related to value and idiosyncratic volatility and negatively to size and institutional ownership. (c) 2023 Elsevier B.V. All rights reserved.
Keywords:
Price informativeness
Price volatility
Learning
Information aggregation
Comovement score
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12
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3.8K
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