Can Investors Gain Incremental Information Through Online Searching? Evidence from China

ABSTRACT

This study investigates the impact of investors’ online searching on the pricing efficiency of the capital market from the perspective of stock price synchronization. Using the Chinese firms listed in the Shanghai and Shenzhen Stock Exchanges from 2013 to 2019, we find that the more investors’ online searches there are, the less serious the stock price synchronization issue is. Consistent with the notion that online search facilitates the inclusion of more company-specific information in stock prices, we find that the effect of investors’ online searching on weakening the company’s stock price synchronization is more pronounced for companies with worse stock liquidity and higher separation of control rights and cash flow rights. Moreover, we demonstrate that investors’ online searching can weaken stock price synchronization by reducing irrational herding behavior. A further examination of the herding behavior of different investors reveals that online searching mainly plays a role in reducing the herding behavior of individual investors. Collectively, these results indicate that online searching is important for investors to gain greater access to valuable information.

KEYWORDS:

• Online search
• stock price synchronization
• information acquisition
• herding behavior
• China

JEL:

• G10
• G23

Acknowledgments

All authors are grateful to the editor and the anonymous reviewer for suggestions and comments. All errors, views and conclusions stated in this paper remain the author’s own responsibility.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Supplementary Material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/1540496X.2023.2190846

Additional information

Funding

This work is supported by the National Natural Science Foundation of China [No. 72104109].