The characteristics of informed trading: Implications for asset pricing

Hadiye Aslan, David Easley, Soeren Hvidkjaer and Maureen O'Hara

Journal of Empirical Finance, 2011, vol. 18, issue 5, 782-801

Abstract: 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.

Keywords: Asset pricing; Microstructure; Accounting; PIN models (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (55)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:18:y:2011:i:5:p:782-801

DOI: 10.1016/j.jempfin.2011.08.001

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