MEASURING INFORMATION ASYMMETRY IN LARGE ACTIVE FIRMS ON THE TEHRAN STOCK EXCHANGE
DOI:
https://doi.org/10.1515/saeb-2016-0126Keywords:
Information asymmetry, Tehran Stock Exchange, Composite index, PIN, FEAbstract
In financial markets, transparency of financial information is one of the most effective variables of investment strategies. Information asymmetry can seriously affect firm performance on the stock exchange and firms with a poor informational environment can lose the interest of investors. Reducing information asymmetry can have an important effect on firm performance on the stock exchange. Firms may lack a clear informational environment in the market because of the emerging conditions governing the Tehran Stock Exchange. Because larger and more active firms on the Tehran Stock Exchange provide more information, measuring the informational environment of these firms provides an overview of information asymmetry. The present study calculated the information asymmetry in these firms using the PIN and FE indices. The inconsistent results provided by these indices prompted the authors to offer a new index that is a composite of the PIN and FE that can better explain information asymmetry in developing market such as Asian stock markets. The results show that the new composite index, by using the mechanisms of the PIN and FE indices, provides a better outcome. The new composite index shows that the Tosee Melli Inv (TMEL1), Mobarakeh Steel (FOLD1), Iran Mobil Tele (HMRZ1), Saipa (SIPA1) and I.N.C. Ind. (MSMI1) firms have a better informational environment on the Tehran Stock Exchange.
JEL Codes - D82, D83
References
Abad, D., and Yague, J., 2012. From PIN to VPIN: An introduction to order flow toxicity. 10(2), 74-83. DOI: DOI:10.1016/j.srfe.2012.10.002
Agudelo, D. A., Giraldo, S., and Villarraga, E., 2015. Does PIN measure information? Informed trading effects on returns and liquidity in six emerging markets. International Review of Economics & Finance, 39, 149-161. DOI: DOI:10.1016/j.iref.2015.04.002
Ascioglu, A., Hegde, S. P., and McDermott, J. B., 2008. Information asymmetry and investment-cash flow sensitivity. Journal of Banking & Finance, 32(6), 1036-1048. DOI: DOI:10.1016/j.jbankfin.2007.09.018
Aslan, H., Easley, D., Hvidkjaer, S., and O'Hara, M., 2011. The characteristics of informed trading: Implications for asset pricing. Journal of Empirical Finance, 18(5), 782-801. DOI: DOI:10.1016/j.jempfin.2011.08.001
Attig, N., Fong, W. M., Gadhoum, Y., and Lang, L., 2006. Effects of Large Shareholding on Information Asymmetry and Stock Liquidity. Journal of Banking & Finance, 30(10), 2875-2892. DOI: DOI:10.1016/j.jbankfin.2005.12.002
Berry, S., Levinsohn, J., and Pakes, A., 1995. Automobile prices in market equilibrium. Econometrica, 63(4), 841-890. DOI: DOI:10.2307/2171802
Bhattacharya, N., Desai, H., and Venkataraman, K., 2009. Earnings quality and information asymmetry: evidence from trading costs: Available at SSRN.
Brockman, P., and Yan, X. S., 2009. Block ownership and firm-specific information. Journal of Banking & Finance, 33(2), 308-316. DOI: DOI:10.1016/j.jbankfin.2008.08.011
Chang, C., and Lin, E., 2015. Cash-futures basis and the impact of market maturity, informed trading, and expiration effects. International Review of Economics & Finance, 35, 197-213. DOI: DOI:10.1016/j.iref.2014.09.003
Chen, Y., and Zhao, H., 2012. Informed trading, information uncertainty, and price momentum. Journal of Banking & Finance, 36(7), 2095-2109. DOI: DOI:10.1016/j.jbankfin.2012.03.016
Christie, A., 1987. On cross-sectional analysis in accounting research. Journal of Accounting and Economics, 9(3), 231-258. DOI: DOI:10.1016/0165-4101(87)90007-3
Clarke, J., and Shastri, K., 2000. On information asymmetry metrics: Available at SSRN.
Crawford, G. S., Pavanini, N., and Schivardi, F., 2015. Asymmetric Information and Imperfect Competition in Lending Markets. University of Zurich, Department of Economics, Working Paper, 192. DOI: 10.2139/ssrn.2602751
Demsetz, H., 1968. The cost of transacting. The Quarterly Journal of Economics, 82(1), 33-53. DOI: DOI:10.2307/1882244
Dey, M. K., and Radhakrishna, B., 2015. Informed trading, institutional trading, and spread. Journal of Economics and Finance, 39(2), 288-307. DOI: DOI:10.1007/s12197-012-9249-4
Easley, D., Hvidkjaer, S., and O'Hara, M., 2002. Is information risk a determinant of asset returns? The Journal of Finance, 57(5), 2185-2221. DOI: DOI:10.1111/1540-6261.00493
Easley, D., Kiefer, N., and O'Hara, M., 1997a. The information content of the trading process. Journal of Empirical Finance, 4(2-3), 159-186. DOI: DOI:10.1016/S0927-5398(97)00005-4
Easley, D., Kiefer, N., and O'Hara, M., 1997b. One day in the life of a very common stock. Review of Financial Studies, 10(3), 805-835. DOI: DOI:10.1093/rfs/10.3.805
Easley, D., Kiefer, N. M., O'Hara, M., and Paperman, J. B., 1996. Liquidity, Information, and Infrequently Traded Stocks. The Journal of Finance, 51(4), 1405-1436. DOI: 10.2307/2329399
Easley, D., and O'Hara, M., 1987. Price, trade size, and information in securities markets. Journal of Financial Economics, 19(1), 69-90. DOI: DOI:10.1016/0304-405X(87)90029-8
Easley, D., and O'Hara, M., 1992. Time and the process of security price adjustment. The Journal of Finance, 47(2), 577-605. DOI: DOI:10.1111/j.1540-6261.1992.tb04402.x
Easley, D., O'Hara, M., and Paperman, J., 1998. Financial analysts and informtion-based trade. Journal of Financial Markets, 1(2), 175-201. DOI: DOI:10.1016/S1386-4181(98)00002-0
Easley, D., O'Hara, M., and Saar, G., 2001. How stock splits affect trading: A microstructure approach. Journal of Financial and Quantitative Analysis, 36(1), 25-51. DOI: DOI:10.2307/2676196
Glosten, L., and Milgrom, P., 1985. Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14(1), 71-100. DOI: DOI:10.1016/0304-405X(85)90044-3
Hasbrouck, J., 2009. Trading Costs and Returns for U.S. Equities: Estimating Effective Costs from Daily Data. The Journal of Finance, 64(3), 1445-1477. DOI: 10.1111/j.1540-6261.2009.01469.x
Healy, P., Hutton, A., and Palepu, K., 1999. Stock performance and intermediation changes surrounding sustained increases in disclosure. Contemporary Accounting Research, 16(3), 485-520. DOI: DOI:10.1111/j.1911-3846.1999.tb00592.x
Healy, P., and Palepu, K., 1995. The challenges of investor communications: The case of CUC International, Inc. Journal of Financial Economics, 38(2), 111-140. DOI: DOI:10.1016/0304-405X(94)00814-H
Heidle, H., and Huang, R., 2002. Information-based trading in dealer and auction markets: An analysis of exchange listings. Journal of Financial and Quantitative Analysis, 37(3), 391-424. DOI: DOI:10.2307/3594986
Jayaraman, S., 2008. Earnings volatility, cash flow volatility and informed trading. Journal of Accounting Research, 46(4), 809-851. DOI: DOI:10.1111/j.1475-679X.2008.00293.x
Kang, M., 2010. Probability of information-based trading and the January effect. Journal of Banking & Finance, 34(12), 2985-2994. DOI: DOI:10.1016/j.jbankfin.2010.07.007
Krishnaswami, S., and Subramaniam, V., 1999. Information asymmetry, valuation and the corporate spin-off decision. Journal of Financial Economics, 53(1), 73-112. DOI: DOI:10.1016/S0304-405X(99)00017-3
Kyle, A., 1985. Continuous auctions and insider trading. Econometrica, 53(6), 1315-1335. DOI: DOI:10.2307/1913210
Lang, M., and Lundholm, R., 1996. Corporate disclosure policy and analyst behavior. The Accounting Review, 71(4), 467-492. DOI: DOI:10.2307/1913210
Lee, C. M. C., and Ready, M. J., 1991. Inferring Trade Direction from Intraday Data. The Journal of Finance, 46(2), 733-746. DOI: 10.1111/j.1540-6261.1991.tb02683.x
Leuz, C., and Verrecchia, R., 2000. Economic consequences of increased disclosure. Journal of Accounting Research, 38, 91-124. DOI: DOI:10.2307/2672910
Lin, E., Lee, C. F., and Wang, K., 2013. Futures mispricing, order imbalance, and short-selling constraints. International Review of Economics & Finance, 25, 408-423. DOI: DOI:10.1016/j.iref.2012.08.001
Mohd, E., 2005. Accounting for software development costs and information asymmetry. The Accounting Review, 80(4), 1211-1231. DOI: DOI:10.2308/accr.2005.80.4.1211
Paparizos, P., Dimitriou, D., Kenourgios, D., and Simos, T., 2016. On high frequency dynamics between information asymmetry and volatility for securities. Journal of Economic Asymmetries, 13, 21-34. DOI: DOI:10.1016/j.jeca.2015.10.001
Richardson, V. J., 2000. Information asymmetry and earnings management: Some evidence. Review of Quantitative Finance and Accounting, 15(4), 325-347. DOI: DOI:10.1023/A:1012098407706
Sankaraguruswamy, S., Shen, J., and Yamada, T., 2013. The relationship between the frequency of news release and the information asymmetry: The role of uninformed trading. Journal of Banking & Finance, 37(11), 4134-4143. DOI: DOI:10.1016/j.jbankfin.2013.07.026
Stoll, H. R., 2000. Presidential Address: Friction. The Journal of Finance, 55(4), 1479-1514. DOI: DOI:10.1111/0022-1082.00259
Vega, C., 2006. stock price reaction to public and private information. Journal of Financial Economics, 82(1), 103-133. DOI: DOI:10.1016/j.jfineco.2005.07.011
Wan, Y., 2009. Corporate governance, disclosure method and information asymmetry. Master of Science Thesis. http://hdl.handle.net/10388/etd-11102009-150016
Welker, M., 1995. Disclosure policy, information asymmetry and liquidity in equity markets. Contemporary Accounting Research, 11(2), 801-827. DOI: DOI:10.1111/j.1911-3846.1995.tb00467.x
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2016 SCIENTIFIC ANNALS OF ECONOMICS AND BUSINESS
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All accepted papers are published on an Open Access basis.
The Open Access License is based on the Creative Commons license.
The non-commercial use of the article will be governed by the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License as currently displayed on https://creativecommons.org/licenses/by-nc-nd/4.0
Under the Creative Commons Attribution-NonCommercial-NoDerivatives license, the author(s) and users are free to share (copy, distribute and transmit the contribution) under the following conditions:
1. they must attribute the contribution in the manner specified by the author or licensor,
2. they may not use this contribution for commercial purposes,
3. they may not alter, transform, or build upon this work.
This work is licenced under a 
