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Using firms from 20 non‐US countries, we investigate whether and how ownership structure, analyst following and country‐level institutions influence stock price informativeness (SPI). We find that stock price informativeness decreases with control‐ownership wedge (the detachment of voting rights from cash flows rights), and this SPI‐reducing effect of the wedge is attenuated for firms with high analyst following and in countries with strong country‐level institutions. We also find that stock price informativeness decreases with analyst following, but this SPI‐reducing effect of analyst following is attenuated in countries with strong country‐level institutions.

We investigate whether foreign institutional investors facilitate firm-specific information flow in the global market. Specifically, using annual institutional ownership data from firms across 40 countries, we find that foreign institutional ownership is negatively associated with excess stock return comovement. Our results are more pronounced when foreign institutional investors originate from common-law countries and hold a large equity stake in invested firms; and when the invested firms are located in civil-law countries. Overall, the evidence suggests that foreign institutional investors from countries with strong investor protection play an important informational role in mitigating excess stock return comovement around the world.

We investigate the real effect of short selling on corporate investments and, in particular, examine whether short selling improves managerial learning from stock prices in making investment decisions. We find that short selling improves investment sensitivity to stock price, most likely through a channel that short selling increases stock price informativeness. Using the lifting of uptick rule for index arbitrageurs and market makers as an exogenous shock to short selling intensity, we confirm the causal effect of short selling on managerial learning. Overall, our evidence suggests that short selling enhances the role of stock price in resource allocation.

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