The Role of Stock Price Synchronicity and Stock Price Informativeness on Portfolio Optimization

Document Type : Research Paper

Authors

1 Associate Professor, Faculty of Finance & Banking, Allameh Tabataba’i University, Tehran, Iran

2 Member of the Management and Accounting faculty of Payame Noor University and Ph.D. student of Accounting at Allameh Tabataba’i University

Abstract

Selecting effective criteria on prices and consequently on investor’s decision making is one of the most debating topics in portfolio optimization debate. The question is that stock prices will change in relation with market and industry price changing or with the information releasment by companies. To choose optimal portfolio one should consider these relations. Stock price synchronicity measures the degree to which the market change can explain stock price movement and stock price informativeness measures the degree to which information can explain these changes. As a result the gole of this study is surveying the role of stock price synchronicity and stock price informativeness on portfolio optimization. So by collecting 202,000 price changing data from 130 sample companies during 10 years and with solving 1300 regression equations we computed stock price synchronicity. Then by collecting 59,000 financial and nonfinancial data from the samples and analyzing these data and using data envelopment analysis (DEA) technique we made several portfolio to compare them by sharp ratio. The result shows that stock price synchronicity is about 59% and stock price informativeness is about 41% in the sample and if stock price synchronicity and stock price informativeness affection be considered in portfolio selection then portfolios will have better return.

Keywords

References

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History

  • Receive Date: 07 January 2019
  • Revise Date: 26 April 2019
  • Accept Date: 07 May 2019

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