Information based trade, the PIN variable, and portfolio style differences: Evidence from Tokyo stock exchange firms

Keiichi Kubota and Hitoshi Takehara

Pacific-Basin Finance Journal, 2009, vol. 17, issue 3, 319-337

Abstract: We investigate whether the variables related to information based trade proposed by Easley et al. [Easley, D., Kiefer, N.M., O'Hara, M., Paperman, J.B., 1996. Liquidity, information, and infrequently traded stocks. Journal of Finance 51, 1405-1436.] help explain the daily price discovery process in an electronically order-driven market of the Tokyo Stock Exchange using the microstructure tick data. We find strong evidence that the value firms show higher probability of bad news occurrences than the growth firms. We also find that the PIN is higher for smaller firms as is the case in the U.S. With the portfolio ranking tests and the Fama and MacBeth test we find that the alpha variable, which represents the information event occurrence rate, is systematically related to required returns, while the evidence related to the PIN is weaker. In the final Fama and MacBeth test, in which the PIN or alpha variable is used as an additional explanatory variable to the benchmark Fama and French three factor model, we find that the sign of the alpha variable supports our hypothesis that the arrival of new information reduces the risk of the stock, though not significantly. We also find that the higher PIN value increases the risk of the stock, at the same time it can marginally improve the explanatory power of the multifactor model. We conclude that the PIN variable cannot be a substitutable proxy variable for the book-to-market factor unlike in the U.S., and that it is strongly related to the size variable.

Keywords: Information; based; trade; Market; microstructure; Asymmetric; information (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927-538X(08)00032-2
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:pacfin:v:17:y:2009:i:3:p:319-337

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().