The Mediator role of Information Asymmetry in Imperfect Competition Market on the relation between Earnings Forecast Bias & Idiosyncratic Risk derived from Capital Assets Pricing Model

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HASSANI MOHAMMAD; Moradi Sanaz

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Journal: ADVANCES IS FINANCE AND INVESTMENT Year:2021 | Volume:1 | Issue:1 Page(s): 81-100

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Title

The Mediator role of Information Asymmetry in Imperfect Competition Market on the relation between Earnings Forecast Bias & Idiosyncratic Risk derived from Capital Assets Pricing Model

Author(s)

HASSANI MOHAMMAD | Moradi Sanaz | Issue Writer Certificate

Keywords

Earnings Forecast Bias

Information Asymmetry

Idiosyncratic Risk

Capital Assets Pricing Model

Abstract

Theoretically, firms should reduce information risks to provide a transparent environment for different groups in capital market to make decisions. Therefore, identifying potential risk factors is important. This paper investigated the impact of Earnings Forecast Bias and Information Asymmetry in imperfect competition market on the Idiosyncratic Risk. It is used the standard deviation of residuals extracted from capital asset pricing model to measure the Idiosyncratic Risk. Earnings Forecast Bias is measured based on the absolute value of difference between actual value and forecasted value of earnings per share scaled by the beginning stock price. In addition, Information Asymmetry is assessed based on the stock price bid-ask spread. Using filtering method, 147 firms listed in Tehran Securities & Exchange during 2013 to 2018 selected as research population. Research hypotheses analyzed through multivariate regression models. Research results showed that more Earnings Forecast Bias lead to increase the Idiosyncratic Risk. In addition, high level of Information Asymmetry caused to increase the Idiosyncratic Risk. Also Information Asymmetry lead to strengthen the positive relation between Earnings Forecast Bias and Idiosyncratic Risk. As a whole, firms with high level of Earnings Forecast Bias & Information Asymmetry as inverse proxies of information quality which have worse information environment have more Idiosyncratic Risk.

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APA: Copy

HASSANI, MOHAMMAD, & Moradi, Sanaz. (2021). The Mediator role of Information Asymmetry in Imperfect Competition Market on the relation between Earnings Forecast Bias & Idiosyncratic Risk derived from Capital Assets Pricing Model. ADVANCES IS FINANCE AND INVESTMENT, 1(1 ), 81-100. SID. https://sid.ir/paper/397432/en

Vancouver: Copy

HASSANI MOHAMMAD, Moradi Sanaz. The Mediator role of Information Asymmetry in Imperfect Competition Market on the relation between Earnings Forecast Bias & Idiosyncratic Risk derived from Capital Assets Pricing Model. ADVANCES IS FINANCE AND INVESTMENT[Internet]. 2021;1(1 ):81-100. Available from: https://sid.ir/paper/397432/en

IEEE: Copy

MOHAMMAD HASSANI, and Sanaz Moradi, “The Mediator role of Information Asymmetry in Imperfect Competition Market on the relation between Earnings Forecast Bias & Idiosyncratic Risk derived from Capital Assets Pricing Model,” ADVANCES IS FINANCE AND INVESTMENT, vol. 1, no. 1 , pp. 81–100, 2021, [Online]. Available: https://sid.ir/paper/397432/en

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