Does voluntary disclosure improve stock price informativeness?

According to theory, comovement in stock prices reflects comovement in the fundamental factors underlying the values of stocks. Recent theory contends that stock price comovement can be driven by information markets or the informational opacity of the firm. To the extent that voluntary disclosure reduces information acquisition cost and enhances firm transparency, we predict that enhanced voluntary disclosure reduces stock price comovement.We provide evidence in support of this prediction using analyst evaluation of firm disclosure policy. Overall, our evidence supports the effectiveness of firm disclosure policy in increasing the amount of firm-specific information contained in stock returns.