Corporate events, return synchronicity and price efficiency

Abstract This paper examines a dilemma in the relationship between R 2 and price efficiency: After comprehensively studying the R 2 change around 7 well-known corporate events using Hong Kong stock market data, neither the traditional understanding of R 2 as price inefficiency, nor the behavioral viewpoint of R 2 as price efficiency can explain the observed R 2 change around the events. We adopt an alternative methodology to replace the standard difference-in-difference regression and directly decompose the R 2 change. We find that, due to the endogeneity of events, the changes of R 2 are over-estimated. We further propose that in the event study setting, the R 2 change may be simply the consequence of the inflow/outflow of some trend-chasing investors, and it may be detached from price (in)efficiency. Empirical evidence is consistent with this hypothesis.

• Publication year

  2020

• Venue

  The journal of economic asymmetries

• Publication date

  2020-06-01

• Fields of study

  Business, Economics

• Identifiers
  DOI 10.1016/j.jeca.2019.e00136
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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