Evidence Of Increased Price Informativeness In Financial Market And Its Impact On Investment

Price informativeness is the power of price to forecast firms' future earnings,and it reflects the amount of information about firms' future earnings contained in prices.In an ideal financial market,price should fully reflect all information at any time,and be an accurate signal for the allocation of resources.Information production function,as a basic function of financial market,plays an irreplaceable role in improving the efficiency of resource allocation and promoting economic growth.And price informa-tiveness perfectly measures the role that this function of financial market plays.Higher price informativeness means stronger information production capacity and higher op-eration efficiency of financial market.Therefore,under the background of the rapid development of China's financial market,it is of great theoretical and practical signifi-cance to quantify the contribution made by the information production function of Chi-na's financial market by using the A-share market as a vivid research case,through the combination of qualitative and quantitative way to study issues related to price informa-tiveness.To further and roundly study price informativeness,this paper puts forward five hypotheses about price informativeness based on the results of existing research from a dynamic point of view,covering the relationship between price informativeness and time,the kind of information that increases price informativeness,and the consequences that increased price informativeness has on managers' investment decisions.For all these hypotheses,this paper first defines main variables,and then selects top 300 non-financial firms with highest A-stock circulation market value as the sample,and year 1998 to 2014 as the study period,and finally finished the empirical test by constructing price informativeness model,aggregate efficiency model,and by applying group com-parisons.Through empirical test,this paper gets the following conclusions.Firstly,the price informativeness is higher with longer horizon when years that price informative-ness is negative are removed.Secondly,under all horizons,price informativeness all shows a significant up-trend over time.Thirdly,the increased price informativeness is due to improved disclosure information,thus the increase of price informativeness does not affect managers' investment decisions.Fourthly,firms with higher shareholding ra-tio by institutional investors,firms with lower liquidity,and growth firms contribute more to the increase of price informativeness,and non-state-owned firms do more con-tribution to the increase of price informativeness under 3-year horizon,while state-owned firms do so under 5-year horizon.Finally,combined with the empirical results,this paper presents policy suggestions on how to further increase price informativeness and improve the efficiency of China' s stock market as follows:(1)replace the verifica-tion system,the current IPO system,with the registration system,and ameliorate the information disclosure system to improve the information transparency of listed com-panies;(2)cultivate more institutional investors,and strengthen their investment ana-lytical capacity;(3)improve the multi-level stock market system,and promote the de-velopment of derivatives such as stock-index futures;(4)reinforce the market's integ-rity construction,enhance investors' education,reduce market speculation atmosphere.