Impact of Asymmetric Information on the Investment Sensitivity to Stock Price and the Stock Price Sensitivity to Investment

Abstract

Purpose: The purpose of the study is to find out the relation between the stock price and investment and to explore the consequence of information asymmetry on the stock price sensitivity to investment and investment sensitivity to the stock prices for the manufacturing firms that are working in Pakistan and listed at KSE. Methodology: Study was conducted by 99 firms listed at KSE and 1386 observations for the period of 2001-2014. Empirical studies were conducted based on two hypotheses by using price non-synchronous, price delay, firms' size and age as a proxy of asymmetric information and change in asset as a measure of investment. Findings: Overall results show that there is an insignificant negative correlation between the sensitivity of investment to stock prices and there is an insignificant positive correlation between the sensitivity of stock prices to the investment. The critical findings of the study are that the management must learn from the market during the decision making. Practical Implications: The research has significant impact on investors, firm management, Government and as well as for the young potential in the field of research. Originality/Value: The paper fills the research gap. It studies the impact of asymmetric information on the investment sensitivity to stock price, and the stock price sensitivity of investment in Karachi stock Exchange (Pakistan) for the first time.