Publication Type

Conference Paper

Publication Date

12-2005

Abstract

This paper presents a synthesized model of asymmetric information. An empirical analysis of more than 1,400 NYSE common stocks shows that trade direction is more important than volume in revealing the asymmetry. There is also evidence to suggest that signed duration reflects informed trading activity. We use the proposed measure of information asymmetry to study daily changes in the level of informed trading and find that earnings announcements narrow the information gap between the informed and the uninformed. On average, information asymmetry is largest at the beginning of the trading day and it decreases monotonically toward the closing bell. More importantly, the asymmetric information measure is negatively related to the number of shareholders, number of analysts following a firm and whether there is an exchange-traded equity option written on the firm’s stock. An implication of this finding is that firms can reduce information asymmetry by implementing disclosure measures that attract not only more investors and analysts but also option writers.

Keywords

Market Microstructure, Information Asymmetry

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Financial Management Association Annual Meeting, December 2005, Kaohsiung, Taiwan

First Page

1

Last Page

38

City or Country

Kaohsiung, Taiwan

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