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Type: Journal article
Title: The relationship between the frequency of news release and the information asymmetry: The role of uninformed trading
Author: Sankaraguruswamy, S.
Shen, J.
Yamada, T.
Citation: Journal of Banking and Finance, 2013; 37(11):4134-4143
Publisher: Elsevier Science BV
Issue Date: 2013
ISSN: 0378-4266
Statement of
Srinivasan Sankaraguruswamy, Jianfeng Shen, Takeshi Yamada
Abstract: This paper shows that the degree of information asymmetry is lower for firms with more frequent news releases. The relation holds for various measures of information asymmetry such as the probability of information-based trading (. PIN), permanent price impact, and adverse selection component of bid-ask spread, even after adjusting for endogeneity between news release and information asymmetry. By decomposing the PIN into intensities of uninformed and informed trades, similarly to Brown and Hillegeist (2007), we find that intensity of uninformed trading increases much more than that of informed trading for firms with more frequent news releases. As a result, information asymmetry, as is measured by PIN, decreases for such firms due to the large increase in the intensity of uninformed trading. Our findings highlight not only the importance of news releases in leveling the playing field of investors but also the role of uninformed investors in reducing trading cost due to information asymmetry. © 2013 Elsevier B.V..
Keywords: News release
Information asymmetry
Uninformed trading
Rights: © 2013 Elsevier B.V. All rights reserved
DOI: 10.1016/j.jbankfin.2013.07.026
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