Price information content and stock return synchronicity: Evidence from information theory and disruption

Over the last two decades stock return synchronicity has been one of the important criteria for measuring the information content of stock prices. Based on existing theoretical foundations, there are two competing theories about the stock return synchronicity. First theory introduces stock return synchronization as a measure of stock price information and information content and the second theory that considers stock return synchrony as a disruption to trading process. The present study seeks to reject or confirm any of the recent hypotheses and also examines the relationship between stock information content and quality of financial information. The results obtained from the information of 165 companies listed on the Tehran Stock Exchange for the period 2008 to 2018 and the use of regression models based on the combined data approach (data panel) indicate that stock return synchronicity had a negative and significant effect on the information content of stock prices and with increasing in stock returns the information content of stock prices have declined. Other results show that by increasing the quality of financial information, stock price information content has increased and the value of stock information content in companies with higher financial information quality was significantly higher. The overall results of the study indicate that the information content of stock prices has increased significantly by increasing the quality of financial information and decreasing the synchrony of stock returns and these results have been in strong support for the information hypothesis.