The Characteristics of Informed Trading: Implications for Asset Pricing

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

Research output: Contribution to journalReview articlepeer-review


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.
Original languageEnglish
JournalJournal of Empirical Finance
Issue number5
Pages (from-to)782-801
Number of pages19
Publication statusPublished - 2011

Cite this