An Empirical Study On The Effect Of Trading Activity To Stock Price Informativeness

Price-leading and post-earnings announcement drift phenomena exist in Chinese securities market as well as other countries'. Compared to historical earnings, stock prices have much more additional information. Stock price informativeness comes from frequent trading, during the process of trading, information capitalized into stock price step by step, and stock price informativeness changes as trading activity changes, that is, stock price informativeness was deeply influenced by the behavior of investors. So this thesis researches on how the trading activity impacts on stock price informationness in Chinese securities market.At first, we expound the relationship between stock price informativeness and trading activity based on financial market microstructure, as the information is asymmetry, trading is considered to be a signal of personal information being transferred, so the trading activity affects stock price informativeness a lot. And then, with a sample of 1456 observations listed in Shanghai Stock Exchange during 2004-2006, using price non-synchronicity as a measure of stock price informativeness, and share turnover as a measure of trading activity, we make an empirical study on how share turnover works on the stock price informativeness, including both direction and ways. The results shows that: firstly, stock price informativeness is about 67.38% on average, of which the degree increased significantly year by year in the sample period; Secondly, turnover and stock price informativeness may be endogenous, and the Hausman proof-test confirms the assumption; Thirdly, stock price informativeness and turnover are significantly positive correlated, the more active the stock trading is, the more informative the stock price is; At last, we also find the effect way of turnover on stock price informativeness, that is, share turnover promotes more fundamental information capitalized into stock prices, mainly through higher the correlation between stock price and future earnings as well as current unexpected earnings, only when the trading is extremely frequent, it could lower post-earnings announcement drift phenomenon.