Measuring the Information Content of Stock Trades

Joel Hasbrouck

Journal of Finance, 1991, vol. 46, issue 1, 179-207

Abstract: This paper suggests that the interactions of security trades and quote revisions be modeled as a vector autoregressive system. Within this framework, a trade's information effect may be meaningfully measured as the ultimate price impact of the trade innovation. Estimates for a sample of NYSE issues suggest a trade's full price impact arrives only with a protracted lag; the impact is a positive and concave function of the trade size; large trades cause the spread to widen; trades occurring in the face of wide spreads have larger price impacts; and information asymmetries are more significant for smaller firms. Copyright 1991 by American Finance Association.

Date: 1991
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