Momentum and Informed Trading

34 Pages Posted: 17 Mar 2008 Last revised: 13 Nov 2013

See all articles by Allaudeen Hameed

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Dong Hong

Singapore Management University - Lee Kong Chian School of Business

Mitch Warachka

Chapman University

Date Written: February 2008

Abstract

Consistent with the predictions of Wang (1994), we document that firm-specific informed trading is an important determinant of price momentum. The stronger return continuation in stocks with more informed trading cannot be explained by cross-sectional differences in uncertainty proxies such as analyst forecast dispersion, analyst coverage, idiosyncratic return volatility, and size. The relationship between informed trading and return continuation is also not attributable to cross-sectional differences in liquidity. Instead, our evidence emphasizes the role of price discovery in generating short-term price momentum.

Keywords: Momentum, Informed Trading, Liquidity, Uncertainty

JEL Classification: G10, G11

Suggested Citation

Hameed, Allaudeen and Hong, Dong and Warachka, Mitch, Momentum and Informed Trading (February 2008). EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1013224 or http://dx.doi.org/10.2139/ssrn.1013224

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu.sg/faculty-details/?profId=1

Dong Hong

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
178899
Singapore

Mitch Warachka (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

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