Measuring the Information Content of Stock Trade; Evidence from Iranian Capital Market

Document Type : Research Paper

Authors

1 Department of Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran

2 Department of Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran

Abstract

In efficient markets, all agents are rational, and new information becomes immediately available to everyone, resulting in instantaneous price adjustments. However, in the real world, market participants differ significantly in both their access to information and their interpretation of it, leading to information asymmetry. Accurately determining the level of information asymmetry is crucial for traders to make appropriate decisions regarding asset selection, timing, risk level redefinition, and required rate of return. It is also essential for regulators to achieve designing a well-functioning market. In this paper, we estimate the level of information asymmetry using 1,260 stocks/quarters data (140 companies across 10 industries, constituting 64% of Iran's stock market value, during 1400-Q1 to 1402-Q1) by employing two prominent models, PIN and MPIN. The results indicate that, first, the probability of private information in the Iranian stock market is much higher than in other countires. Second, the highest level of information asymmetry is observed in the "Agriculture" industry, conversely, the "Petroleum Products" and "Chemical" industries exhibit the lowest MPIN values. Third, at the firm-specific level, "ZMLRD" from the Agriculture industry exhibits the highest information asymmetry, while "ARYA" from the Chemical industry shows the lowest level of information asymmetry. The findings imply that industries/companies with low market shares that produce more heterogeneous and diverse products experience higher information asymmetry. In contrast, Petro-Chimical industries/companies, with high market shares that produce relatively more homogeneous products, have less information asymmetry.
JEL Classification: C13, C38, G14, G17

Keywords

Main Subjects

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Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 58, Issue 3 - Serial Number 144
December 2023
Pages 433-458

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History

  • Receive Date: 13 August 2023
  • Revise Date: 14 November 2023
  • Accept Date: 15 November 2023

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