Skip to main content Accessibility help

Transparency, Price Informativeness, and Stock Return Synchronicity: Theory and Evidence

  • Sudipto Dasgupta (a1), Jie Gan (a2) and Ning Gao (a3)


This paper argues that, contrary to the conventional wisdom, stock return synchronicity (or R2) can increase when transparency improves. In a simple model, we show that, in more transparent environments, stock prices should be more informative about future events. Consequently, when the events actually happen in the future, there should be less “surprise” (i.e., less new information is impounded into the stock price). Thus a more informative stock price today means higher return synchronicity in the future. We find empirical support for our theoretical predictions in 3 settings: namely, firm age, seasoned equity offerings (SEOs), and listing of American Depositary Receipts (ADRs).



Hide All
Almazan, A.; Suarez, J.; and Titman, S.. “Capital Structure and Transparency.” Working Paper, University of Texas at Austin (2002).
Barberis, N.; Shleifer, A.; and Wurgler, J.. “Comovement.” Journal of Financial Economics, 75 (2005), 283–317.
Bhattacharya, U.; Daouk, H.; Jorgenson, B.; and Kehr, C.-H.. “When an Event Is Not an Event: The Curious Case of an Emerging Market.” Journal of Financial Economics, 55 (2000), 69–101.
Chan, K., and Hameed, A.. “Stock Price Synchronicity and Analyst Coverage in Emerging Markets.” Journal of Financial Economics, 80 (2006), 115–147.
Chen, Q.; Goldstein, I.; and Jiang, W.. “Price Informativeness and Investment Sensitivity to Stock Prices.” Review of Financial Studies, 20 (2007), 619–650.
Doidge, C.; Karolyi, G. A.; and Stulz, R. M.. “Why Are Foreign Firms Listed in the U.S. Worth More?Journal of Financial Economics, 71 (2004), 205–238.
Dubinsky, A., and Johannes, M.. “Earnings Announcements and Equity Options.” Working Paper, Columbia University (2006).
Durnev, A.; Morck, R.; and Yeung, B.. “Value-Enhancing Capital Budgeting and Firm-Specific Stock Return Variation.” Journal of Finance, 59 (2004), 65–105.
Durnev, A.; Morck, R.; Yeung, B.; and Zarowin, P.. “Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?Journal of Accounting Research, 41 (2003), 797–836.
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 3–56.
Fernandes, N., and Ferreira, M. A.. “Does International Cross-Listing Really Improve the Information Environment?Journal of Financial Economics, 88 (2008), 216–244.
Fishman, M. J., and Hagerty, K. M.. “Disclosure Decisions by Firms and the Competition for Price Efficiency.” Journal of Finance, 44 (1989), 633–646.
Gelb, D. S., and Zarowin, P.. “Corporate Disclosure Policy and the Informativeness of Stock Prices.” Review of Accounting Studies, 7 (2002), 33–52.
Grossman, S. “On the Efficiency of Competitive Stock Markets Where Trades Have Diverse Information.” Journal of Finance, 31 (1976), 573–85.
Jin, L., and Myers, S. C.. “ R 2 Around the World: New Theory and New Tests.” Journal of Financial Economics, 79 (2006), 257–292.
Kaufmann, D.; Kraay, A.; and Mastruzzi, M.. “Governance Matters III: Governance Indicators for 1996, 1998, 2000, and 2002.” World Bank Economic Review, 18 (2004), 253–287.
Lang, M. H.; Lins, K. V.; and Miller, D. P.. “ADRs, Analysts, and Accuracy: Does Cross Listing in the U.S. Improve a Firm’s Information Environment and Increase Market Value?Journal of Accounting Research, 41 (2003), 317–345.
Lang, M. H., and Lundholm, R. J.. “Corporate Disclosure Policy and Analyst Behavior.” The Accounting Review, 71 (1996), 467–492.
Morck, R.; Yeung, B.; and Yu, W.. “The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?Journal of Financial Economics, 58 (2000), 215–260.
Peng, L., and Xiong, W.. “Investor Attention, Overconfidence and Category Learning.” Journal of Financial Economics, 80 (2006), 563–602.
Piotroski, J. D., and Roulstone, B. T.. “The Influence of Analysts, Institutional Investors and Insiders on the Incorporation of Market, Industry and Firm-Specific Information into Stock Prices.” The Accounting Review, 79 (2004), 1119–1151.
Reese, W. A. Jr., and Weisbach, M. S. “Protection of Minority Shareholder Interests, Cross-Listings in the United States, and Subsequent Equity Offerings.” Journal of Financial Economics, 66 (2002), 65–104.
Roll, R. “R 2.” Journal of Finance, 43 (1988), 541–566.
Shiller, R. J. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?American Economic Review, 71 (1981), 421–436.
Shleifer, A., and Vishny, R. W.. “A Survey of Corporate Governance.” Journal of Finance, 52 (1997), 737–783.
Teoh, S. H.; Welch, I.; and Wong, T. J.. “Earnings Management and the Long-Run Market Performance of Initial Public Offerings.” Journal of Finance, 53 (1998a), 1935–1974.
Teoh, S. H.; Welch, I.; and Wong, T. J.. “Earnings Management and the Underperformance of Seasoned Equity Offerings.” Journal of Financial Economics, 50 (1998b), 63–99.
West, K. D. “Dividend Innovations and Stock Price Volatility.” Econometrica, 56 (1988), 37–61.
Wurgler, J. “Financial Markets and the Allocation of Capital.” Journal of Financial Economics, 58 (2000), 187–214.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed