Informed trading, information uncertainty, and price momentum

Chen, Yifan (2012) Informed trading, information uncertainty, and price momentum. Journal of Banking & Finance, 36 (7). pp. 2095-2109. ISSN 0378-4266

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Official URL: http://dx.doi.org/10.1016/j.jbankfin.2012.03.016

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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.

Item Type:Article
Research Areas:School of Science and Technology > Design Engineering and Mathematics
Business School > Economics and International Development
Citations on ISI Web of Science:0
ID Code:9128
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Deposited On:24 May 2012 08:21
Last Modified:13 May 2014 15:47

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