The Characteristics of Informed Trading: Implications for Asset Pricing

Hadiye Aslan, David Easley, Søren Hvidkjær, Maureen O'Hara

Publikation: Bidrag til tidsskriftReviewForskningpeer review

Abstrakt

This paper investigates the linkage of microstructure, accounting, and asset pricing. We determine the relationship between firm characteristics as captured by accounting and market data and a firm's probability of private information-based trade (PIN) as estimated from trade data. This allows us to determine what types of firms have high information risk. We then use these data to create an instrument for PIN, the PPIN, which we can estimate from firm-specific data. We show that PPINs have explanatory power for the cross-section of asset returns in long sample tests. We also investigate whether information risk vitiates the influence of other variables on asset returns. We develop a PPIN factor and show that it dominates the Amihud factor in asset returns. Our results provide strong support for information risk affecting asset returns in long sample tests.
OriginalsprogEngelsk
TidsskriftJournal of Empirical Finance
Vol/bind18
Udgave nummer5
Sider (fra-til)782-801
Antal sider19
ISSN0927-5398
DOI
StatusUdgivet - 2011

Emneord

  • Asset pricing
  • PIN models
  • Accounting
  • Microstructure

Citationsformater