Idiosyncratic Volatility,Stock Price Informativensess And Asset Prices

This dissertation comprises of three parts: in the first part,we regard the unique Chinese short selling mechanism as the event which shocks the firm-specific information diffusion process,then examine the changes of price synchronicity as well as idiosyncratic volatility after the short selling event and observe that idiosyncratic volatility is the more appropriate proxy for firm-specific return variation.We also identify the appropriate proxies under different information environments.As for the second part,we utilize three natural experiment events including the changes of the location for firms' headquarter office,the opening of Shanghai-Hongkong Stock Connect as well as the opening of East Money stock message boards,to further investigate the relationship between idiosyncratic volatility and price informativeness based on the previous conclusion that idiosyncratic volatility is the proxy for firmspecific return variation.Typically,we find that there is a negative relationship between idiosyncratic volatility and price informativeness across three events.The third part unfolds the idiosyncratic volatility puzzle,i.e.,the negative relationship between idiosyncratic volatility and price informativeness,in Chinese stock market.Specifically,we construct no-news driven,mass-media news driven as well as new-media news driven idiosyncratic volatility to examine the existence of idiosyncratic volatility puzzle in China and further prove that limited arbitrage theory has explanatory power for such phenomenon.This dissertation contributes to the existing literature in the following three aspects:(1)gives the first piece of evidence that idiosyncratic volatility and price synchronicity are not interchangeable in the Chinese stock market;(2)proves that idiosyncratic volatility is positively related to stock price informativeness with natural experiments;and(3)explains the idiosyncratic volatility puzzle with theory of the limit of arbitrage.