Abstract

http://ssrn.com/abstract=913077
 
 

References (36)



 
 

Citations (9)



 


 



Marketwide Private Information in Stocks: Forecasting Currency Returns


Rui A. Albuquerque


Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Eva De Francisco


Congressional Budget Office (CBO) - Macroeconomic Analysis Division

Luis Brandao Marques


International Monetary Fund - Monetary and Capital Markets Department

April 2006

CEPR Discussion Paper No. 5604

Abstract:     
We present a model of equity trading with informed and uninformed investors where informed investors act upon firm-specific private information and marketwide private information. The model is used to structurally identify the component of order flow that is due to marketwide private information. Trades driven by marketwide private information display very little or no correlation with the first principal component of order flow. This finding implies that a simple statistical factor is a poor measure of marketwide private information. Moreover, the model suggests that the previously documented comovement in order flow captures mostly common variation in liquidity trades. We find that marketwide private information obtained from equity market data forecasts industry stock returns and foreign exchange returns consistent with Evans and Lyons' (2004a) model of exchange rate determination.

Number of Pages in PDF File: 49

Keywords: Marketwide private information, firm-specific private information, order flow, principal components, currency returns, equity returns

JEL Classification: F31, G11, G14

working papers series


Date posted: July 5, 2006  

Suggested Citation

Albuquerque, Rui A. and de Francisco, Eva and Brandao Marques, Luis, Marketwide Private Information in Stocks: Forecasting Currency Returns (April 2006). CEPR Discussion Paper No. 5604. Available at SSRN: http://ssrn.com/abstract=913077

Contact Information

Rui A. Albuquerque (Contact Author)
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
HOME PAGE: http://people.bu.edu/ralbuque/
Católica-Lisbon School of Business and Economics ( email )
Caminho da Palma de Cima
Lisbon, 1649-023
Portugal
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Eva De Francisco
Congressional Budget Office (CBO) - Macroeconomic Analysis Division ( email )
2nd and D Streets, SW
Washington, DC 18042
United States
Luis Brandao Marques
International Monetary Fund - Monetary and Capital Markets Department ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
2026238308 (Phone)
2025898308 (Fax)
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