Information system noise and the speed of stock price adjustments.

摘要

Prior research has examined the association between the speed of stock price adjustments and characteristics of information signals and firms. However, few studies have examined the association between the speed of stock price adjustments and characteristics of information systems. The latter issue is important since management generally has discretion over the type of information system implemented, not the signals generated by the system. The dissertation research investigates the association between the speed of stock price adjustments to annual earnings announcements and a characteristic of the information systems implemented by firm to generate the announcements. The information system characteristic is the degree of noise in measuring and reporting earnings. Based on the analytic model in Verrecchia (1980), the main research hypothesis is that the speed of stock price adjustment will be more (less) rapid when the announcements are generated by low (high) noise information systems. The dispersion in financial analysts' forecasts just prior to the release of an earnings announcement is used to proxy for information system noise.;The speed of stock price adjustment across firms classified into high and low noise information system categories is measured via three tests: trading rule test, stochastic process test, and percent adjustment test. The trading rule test and stochastic process tests provide inconclusive results with respect to the hypothesis derived from Verrecchia (1980). In retrospect, however, these tests capture both the speed and the magnitude of stock price adjustment to earnings announcements whereas the model in Verrecchia (1980) makes predictions only about the speed of the adjustment process. The percent adjustment test explicitly controls for the magnitude of stock price adjustment and provides a more appropriate test of the hypothesis. The results of the percent adjustment test are consistent with Verrecchia (1980) when the speed of stock price adjustments is based on transaction time.