Information asymmetry, market state, and implementation risk

Zhen-Xing Wu and Tsung-Yu Chen

The North American Journal of Economics and Finance, 2019, vol. 50, issue C

Abstract: This study demonstrates that the information risk premium is strongly dependent on the state of the market. Stocks with high information risk, as measured by the probability of informed trading (PIN) or adjusted PIN (ADJPIN), exhibit higher returns than stocks with low information risk when the market is in a good state, but this is not the case when the market is bad. Further analysis reveals that the information risk premium is high when the implementation risk is low, suggesting that uninformed traders require high compensation from informed traders if the informed can easily arbitrage by exploiting the information advantage.

Keywords: Information risk; Probability of informed trading; Implementation risk; Market state (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940818303188
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818303188

DOI: 10.1016/j.najef.2019.101007

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().