Informed trading, information uncertainty, and price momentum

Yifan Chen and Huainan Zhao

Journal of Banking & Finance, 2012, vol. 36, issue 7, 2095-2109

Abstract: In this paper we investigate the effects of informed trading (PIN) and information uncertainty in determining price momentum. We find that trading strategies based on buying high-uncertainty good-news stocks and shorting high-uncertainty bad-news stocks work well when limited to high-PIN stocks, while stocks with low-PIN do not exhibit price continuations, even when the uncertainty level of those stocks is high. In contrast, momentum returns are always significant for high-PIN stocks, irrespective of information uncertainty. Overall, we show that the informed trading effect is both independent of and stronger than that of information uncertainty in determining price momentum.

Keywords: Informed trading; Information uncertainty; Price momentum (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:7:p:2095-2109

DOI: 10.1016/j.jbankfin.2012.03.016

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