TY - JOUR
T1 - The relationship between the frequency of news release and the information asymmetry
T2 - The role of uninformed trading
AU - Sankaraguruswamy, Srinivasan
AU - Shen, Jianfeng
AU - Yamada, Takeshi
PY - 2013/11
Y1 - 2013/11
N2 - 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.
AB - 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.
KW - D82
KW - G14
KW - Information asymmetry
KW - News release
KW - PIN
KW - Uninformed trading
UR - http://www.scopus.com/inward/record.url?scp=84882785199&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2013.07.026
DO - 10.1016/j.jbankfin.2013.07.026
M3 - Article
SN - 0378-4266
VL - 37
SP - 4134
EP - 4143
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 11
ER -