R²: Information or Noise?

Yugang Yin^1, , Wei Chen¹, Fei Yu¹ and Dongju Chen¹

¹School of Securities and Futures, Southwestern University of Finance and Economics, Sichuan, China

Cite this paper:
Yugang Yin, Wei Chen, Fei Yu and Dongju Chen. R²: Information or Noise?. Journal of Finance and Economics. 2016; 4(1):21-29. doi: 10.12691/jfe-4-1-3

Abstract

Whether lower stock price synchronicity reflects information or noise does not have a conclusive answer yet. From the perspective of analyst following in , our empirical study reveals that, the stock price synchronicity which star analysts following is lower than that of non-star analysts, but star analysts do not own more private information about the stocks from the view of earnings forecast accuracy. Investors tend to overreact to the star analysts recommendations, and lower stock price synchronicity is due to noise but not private information revealed in these stocks. So the lower price synchronicity means noise.

Keywords:
analyst following stock price synchronicity forecasts accuracy cognition bias

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