The Summary Informativeness of Stock Trades: An Econometric Analysis

Joel Hasbrouck

The Review of Financial Studies, 1991, vol. 4, issue 3, 571-95

Abstract: In a security market with asymmetrically informed participants, trades are signals of private information. In this article, new measures of trade informativeness are proposed based on a decomposition of the variance of changes in the efficient price into trade-correlated and -uncorrelated components. The trade-correlated component has a natural interpretation as an absolute measure of trade informativeness. The ratio of this component to the total variance is a relative measure (i.e., a proportion normalized with respect to the total public information). For a sample NYSE-listed companies, trade are found to be more informative for small firms in both absolute and relative senses. From an analysis of intraday patterns, it appears that trades are in absolute terms more informative at the beginning of trading, but slightly less informative in relative terms. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1991
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