Factoring Information Into Returns
Cornell University - Department of Economics
Copenhagen Business School
Cornell University - Samuel Curtis Johnson Graduate School of Management
July 27, 2005
EFA 2004 Maastricht Meetings Paper No. 4118
We examine the potential proﬁts of trading on a measure of private information (PIN) in a stock. A zero-investment portfolio which is size neutral, but long in high PIN stocks and short in low PIN stocks earns a signiﬁcant abnormal return. The Fama-French and momentum factors do not explain this return. However, signiﬁcant covariation in returns exists among high PIN stocks and among low PIN stocks, suggesting that PIN might proxy for an underlying factor. We create a PIN factor as the monthly return on the zero-investment portfolio above and show that it has some success in explaining returns to independent PIN-size portfolios.
Number of Pages in PDF File: 27
JEL Classification: G12, M41
Date posted: June 23, 2004
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