Transparency, Price Informativeness, and Stock Return Synchronicity Theory and Evidence

This paper argues that contrary to the conventional wisdom, stock return synchronicity (or R(2)) can Increase when transparency improves In a simple model, we show that in more transparent environments stock prices should be more informative about future events Consequently when the events actually happen in the future there should be less surprise" (i e less new information is impounded into the stock price) Thus a more informative stock price today means higher return synchronicity in the future We find empirical support for our theoretical predictions in 3 settings namely firm age seasoned equity offerings (SEOs), and listing of American Depositary Receipts (ADRs)