Investor's Network,Information Disclosure And Asset Prices

With the development of communication technology,the various players in the financial market are increasingly connected.In particular,since the outbreak of COVID-19,research and roadshow activities of listed companies have decreased significantly.A large number of companies communicate with investors online,and analyst research activities have also shifted from offline to online.The transformation of communication mode has increased the frequency of communication between various participants in the market,changed the way of information transmission in the capital market,and had a profound impact on the operation mechanism of the”invisible hand” of the capital market.The development of communications technology has made investor networks more important in financial markets than at any time in history.The existence of investor network makes the information in the market change dynamically.All kinds of information is transmitted and exchanged among market participants in various forms,and the transmission and exchange of these information will affect investors' preferences and trading decisions,and ultimately affect asset prices and other aspects.Existing studies on the meaning of investor network asset pricing only focus on the network's processing of private information.However,public information,as another kind of important information in the market,will also be affected by investor network.Xue and Zheng(2021)Research finds that companies' choice of information disclosure is influenced by the overall information environment of the market.Public information and private information together constitute the information environment of market participants.Given that investor network can act on private information to change the information environment of the market Ozsoylev and Walden(2011),investor network is bound to have a direct impact on the choice of public information disclosure.In view of this,it is of great theoretical significance to study the implications of investor network on public information pricing under the background of rapid development of communication technology.This paper tries to explain the role of investor network in the choice of information disclosure by general equilibrium model.How can investor networks combine public and private information to determine the equilibrium price of assets?This paper mainly includes eight chapters.The first chapter introduces the research background,significance and logical roadmap of this paper,and introduces the main innovations and shortcomings of this paper.The second chapter is literature review,which sorts out investor network,information disclosure and asset price related literature.The third chapter constructs the theoretical model of investor network,information disclosure and asset price.Based on Kim and Verrecchia(1991b)'s pricing model,this chapter introduces the generalized investor network structure and theoretically analyzes the role of investor network in the process of public information pricing.In chapter 4,considering that the company's information disclosure behavior may be directly affected by the investor network,this chapter further models the company's information disclosure choice behavior based on the model in Chapter 3,that is,the theoretical model of investor network,endogenous information disclosure and asset price is constructed.The paper focuses on how the investor network affects the company's information disclosure choice through what channels,and how the private information and the public information of endogenous selection cooperate to determine the equilibrium price of the company's stock.Chapter 5,Chapter 6 and Chapter 7 empirically test the main inferences of the theoretical models in Chapter 3 and Chapter 4 based on the factual data of the Chinese market.The fifth chapter introduces how to construct the stock information network(investor network)according to the holding situation of institutional investors,and proves the existence of the stock information network.Chapter 6,based on the stock information network constructed in Chapter 5,analyzes the relationship between investor network and information disclosure choice from an empirical perspective,that is,the empirical test of the inference 4.3in Chapter 4.Chapter 7 discusses the relationship between investor network and asset price from an empirical perspective,that is,the Chinese market test of 3.2 and 3.5 deduced from Chapter 3.Chapter eight is the conclusion of this paper,which summarizes the content of the whole paper and looks forward to the future research.Finally,the appendix gives the main proof steps of the theoretical model.Based on the above analysis,the main conclusions of this paper are as follows:(1)When the company's information disclosure is exogenous,the investor network only plays a role in the asset pricing process.Investor network reduces the weight of public information in the pricing process by improving the accuracy of private information,thus crowding out the pricing function of public information.From the perspective of market reaction,network connectivity band network inconsistency uplay different roles in market reaction.The price change reflects the change of investors' average belief caused by the release of public information.The more connected the network is,the less heterogeneous investors' understanding of public information is after the release of public information,and the lower the range of price change is.Trading volume reflects the aggregation of heterogeneous beliefs.Under the condition that the network connectivity remains unchanged,the higher the network inconsistency is,the more uneven the network distribution is,and the more different investors' understanding of the newly released public information is,the greater the trading volume will be.From the perspective of market quality,improving network connectivity can increase market pricing efficiency and reduce the cost of capital.However,there is a non-monotonic relationship between network connectivity and market liquidity.Finally,public information and investor networks are conducive to the improvement of market quality.However,they balance each other in the pricing process,and investor network inhibits the improvement of market quality brought by public information disclosure,that is,investor network squeezes out the pricing function of public information.(2)When the company's information disclosure behavior is endogenous,the investor network plays two roles in the asset pricing process.On the one hand,investor network enhances the relative importance of network information by increasing the accuracy of private information,squeezes out the pricing function of public information to some extent,and forms the indirect effect of network on the pricing of public information.On the other hand,when the noise fluctuates greatly,investor network increases the weight of public information in equilibrium price by improving the information accuracy of public information,thus enhancing the pricing function of public information and forming the direct effect of network on public information pricing.The two effects balance each other and ultimately determine the role of the network in asset prices.When the noise fluctuation is very small,the investor network reduces the accuracy of public information,weakens the weight of public information in the equilibrium price,and thus reduces the pricing function of public information.Combined with the direct effect,at this time,the investor network completely squeezes out the pricing function of public information.(3)Total accuracy effect and relative accuracy effect exist in the process of corporate information disclosure selection.For the total accuracy effect,the company's overall information environment is composed of public information and network information,and the two can be added independently.If the network connectivity is higher,the company needs to reduce the accuracy of information disclosure in order to maintain a balanced overall information environment.As for the relative precision effect,the relative precision of price signal and network connectivity affects the company's commitment to non-fundamental risks.Improving the accuracy of information disclosure can reduce the non-fundamental volatility borne by the company and increase the firm's certainty equivalence.The total accuracy effect and relative accuracy effect weigh each other and determine the final level of information disclosure.When the noise fluctuation is at a high level,the relative accuracy effect improves faster than the total accuracy effect.At this point,the relative accuracy effect plays an absolutely dominant role.Improving network connectivity can promote the company's information disclosure level.(4)network and company information disclosure for investors choose the empirical study shows that the Chinese market as an emerging stock market,retail high proportion,high degree of noise trading,company managers in the process of information disclosure choices dominant relative accuracy effect,so the investor network on the Chinese market can promote the quality of corporate disclosure.Based on the external supply shock of fund flow fluctuation,this paper constructs the noise fluctuation index of Chinese market.Empirical test shows that the greater the noise fluctuation,the stronger the response of information disclosure to investor network,that is,noise fluctuation has a strong positive moderating effect.Heterogeneity analysis shows that the promotion effect of investor network on information disclosure is significant only in the companies with equity incentive,high profitability and high governance level.(5)Empirical research on investor network and asset prices shows that on the day of annual report release,the higher the unexpected surplus in annual report,the greater the absolute value of cumulative abnormal return rate and cumulative abnormal trading volume,that is,the unexpected surplus promotes price changes.At the same time,the higher the network connectivity,the smaller the absolute value of cumulative abnormal return rate and cumulative abnormal trading volume caused by unexpected earnings,which indicates that the investor network has crowded out the pricing function of public information.The empirical test of network inconsistency shows that the higher the network inconsistency,the greater the cumulative abnormal trading volume caused by unexpected earnings.The results of mechanism analysis show that the network squeezes out the pricing function of public information by promoting the exchange of private information.In general,the core contribution of this paper is embodied in the following four aspects.Firstly,this paper discusses the influence mechanism of investor network on public information pricing theoretically for the first time,and expands the relevant theoretical analysis on asset prices.Most existing literatures believe that investor network only acts on private information and has no influence on the pricing of public information.Starting from the theory/objective fact that equilibrium price is essentially determined by the tradeoff between private information and public information,this paper introduces investor network and information disclosure options into the traditional pricing model.The research finds that in the pricing process,investor network essentially plays two roles.First,by acting on private information,investor network improves the accuracy of investors' private information and relatively reduces the pricing weight of public information,thus crowding out the pricing function of public information,which is the indirect way of investor network influencing the pricing of public information.On the other hand,investor network can change the optimal information disclosure choice of the company.When the noise of the company's stock fluctuates greatly,the greater the network connectivity,the higher the accuracy of the company's information disclosure.Therefore,the network also improves the pricing weight of public information,which is the direct effect of investor network in the pricing process of public information.Indirect effects and direct effects in opposite directions balance each other and form the final influence of investor network on public information pricing.As far as the author knows,both this topic and the working mechanism of investor network discussed in this paper are first proposed.Secondly,this paper expands the analysis of information disclosure choice.In this paper,we find that there are both positive relative accuracy and negative total accuracy effects in the process of information disclosure,and both effects are affected by the noise fluctuation of the company's stock.When the noise fluctuation is large,the relative accuracy effect is dominant,and the company's information disclosure accuracy is positively correlated with the investor network connectivity;if the noise fluctuation is small,the total accuracy effect is dominant,and the company's information disclosure accuracy is negatively correlated with the investor network connectivity.Both studies show that the company's information disclosure behavior would be affected by the market environment,and investor network can be precisely through private information channels change company information environment,this paper theoretically analyzes the investor network of companies and information disclosure of internal feedback mechanism,and the main inference model gives the Chinese market empirically.As far as the author knows,this paper for the first time relates the information disclosure choice behavior of companies to the investor network in the market,and proposes the corresponding mechanism discussion.Thirdly,the existing literature only focuses on the first-order moment characteristics of the network,such as network density,when describing network characteristics.This paper finds that the second-moment characteristics of investor networks also play an important role in the analysis of the asset pricing implications of investor networks.Moreover,network connectivity(b,the first-moment characteristic of the network)and network inconsistency(u,the second-moment characteristic of the network)play different roles in the market reaction.As far as the author knows,this paper is the first to consider the second-moment characteristic of network(network non-consistency)as an important network attribute,discuss its meaning in asset pricing,and give its specific measurement method.Fourthly,the analysis of this paper expands the research on stock price fluctuation.This paper divides stock volatility into fundamental volatility and noise volatility(non-fundamental volatility)according to whether the stock volatility is determined by the real value of the company.At the same time,based on the external supply shock of fund flow change,this paper constructs the stock noise volatility index of Chinese market.Through the comparative analysis of noise fluctuation and idiosyncratic fluctuation,we find that it is noise fluctuation rather than idiosyncratic fluctuation/fundamental fluctuation that plays an important role in the process of investor network's influence on public information pricing.Based on the research perspective of information economics,this paper constructs a general equilibrium model about the relationship between investor network,information disclosure and asset price,which provides theoretical explanation and empirical evidence to clarify the information exchange mechanism of investor network in China's financial market and its influence on the choice of corporate information disclosure and asset price.