Is information risk a determinant of asset returns?

  • Easley D
  • Hvidkjaer S
  • O’Hara M
  • 353

    Readers

    Mendeley users who have this article in their library.
  • 525

    Citations

    Citations of this article.

Abstract

We investigate the role of information-based trading in affecting asset returns. We show in a rational expectation example how private information affects equilibrium asset returns. Using a market microstructure model, we derive a measure of the probability of information-based trading, and we estimate this measure using data for individual NYSE-listed stocks for 1983 to 1998. We then incorporate our estimates into a Fama and French (1992) asset-pricing framework. Our main result is that information does affect asset prices. A difference of 10 percentage points in the probability of information-based trading between two stocks leads to a difference in their expected returns of 2.5 percent per year. [ABSTRACT FROM AUTHOR]

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Get full text

Authors

  • David Easley

  • Soeren Hvidkjaer

  • Maureen O’Hara

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free