Illiquidity and the Measurement of Stock Price Synchronicity

• 成果类型: Article
• 署名作者: Gassen, Joachim; Skaife, Hollis A.; Veenman, David
• 署名单位: Humboldt University of Berlin; University of California System; University of California Davis; University of Amsterdam
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12519
• 发表日期: 2020
• 页码: 419-456
• 关键词: firm-specific information; corporate governance; idiosyncratic risk; earnings quality; cross-section; MARKET; return; liquidity; IFRS; environments

摘要

This paper demonstrates that measures of stock price synchronicity based on market model R(2)s are predictably biased downward as a result of stock illiquidity, and that previously employed remedies to correct market model betas for measurement bias do not fix R-2. Using a large international sample of firm-years, we find strong negative and nonlinear relations between illiquidity and R-2 across countries, across firms, and over time. Because variables of interest frequently relate to illiquidity as well, we illustrate the consequences of not controlling for illiquidity in synchronicity research. More generally, we demonstrate the importance of using nonlinear control variable methods. Overall, we conclude that the illiquidity-driven measurement bias in R-2 provides an explanation for why prior research finds low-R-2 firms to have weak information environments, and suggest future research carefully evaluate the sensitivity of its results to nonlinear controls for illiquidity.