Is Information Risk a Determinant of Asset Returns?

David Easley, Søren Hvidkjær, Maureen O'Hara

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstrakt

We investigate the role of information-based trading in affecting asset returns. We show in a rational expectation example how private information affects equilibrium asset returns. Using a market microstructure model, we derive a measure of the probability of information-based trading, and we estimate this measure using data for individual NYSE-listed stocks for 1983 to 1998. We then incorporate our estimates into a Fama and French (1992) asset-pricing framework. Our main result is that information does affect asset prices. A difference of 10 percentage points in the probability of information-based trading between two stocks leads to a difference in their expected returns of 2.5 percent per year.
OriginalsprogEngelsk
TidsskriftJournal of Finance
Vol/bind57
Udgave nummer5
Sider (fra-til)2185-2221
Antal sider37
ISSN0022-1082
DOI
StatusUdgivet - 2002
Udgivet eksterntJa

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