The Effects Of Stock Price Informativeness On Idiosyncratic Return Volatility

The securities market in China is now in the stage of burgeoning. So some aspects of securities market is not yet mature and the market efficiency is not enough. There are still some problems such as Banker Complex, Burgeoning Market, excessive speculation, and so on. And these problems stop the government from supervising the market and the investors from trading the stocks. However, with the development of Chinese economy with the accession to the WTO in late 2001, the securities market in China will become an important part of the global financial market. Therefore, It is very significance for our governors and investors to improve the information in stock price of the securities market and improve the market efficiency.Firstly, we use the three factor model which Fama and French proposed to make regression analysis, then we get the R2 to measure the idiosyncratic return volatility of the listed company. Secondly, we choose three kinds of index to measure the information in stock price. The three kinds of index is the age of the listed company which is publicly traded, the holding shares of institutional investors and the probability of informed trading which is the PIN index. Then we reference Roll’s model in 1988 to recondition the three indexes which measure the information in stock price. After we draw the broken line graph, we find that here is a U-shaped curve relationship between the stock price informativeness and the idiosyncratic return volatility. Finally, to verify the relationship between the stock price informativeness and the idiosyncratic return volatility, we use another model to regression. Then we draw the conclusion that there is a U-shaped curve relationship between the stock price informativeness and the idiosyncratic return volatility. In the end of the article, we put forward some policy recommendations based on the current development of securities market in China.