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Firm Characteristics and Informed Trading: Implications for Asset Pricing

53 Pages Posted: 29 Jan 2009 Last revised: 11 Aug 2015

Hadiye Aslan

Georgia State University - Department of Finance

David Easley

Cornell University - Department of Economics

Soeren Hvidkjaer

Copenhagen Business School

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: September 2011

Abstract

This paper investigates the linkage of microstructure, accounting, and asset pricing. We determine the relationship between firm characteristics as captured by accounting and market data and a firm's probability of private information-based trade (PIN) as estimated from trade data. This allows us to determine what types of firms have high information risk. We then use these data to create an instrument for PIN, the PPIN, which we can estimate from firm-specific data. We show that PPINs have explanatory power for the cross-section of asset returns in long sample tests. We also investigate whether information risk vitiates the influence of other variables on asset returns. Our results provide strong support for information risk affecting asset returns, and suggest that PIN weakens, but does not remove, the role of size in asset returns.

Suggested Citation

Aslan, Hadiye and Easley, David and Hvidkjaer, Soeren and O'Hara, Maureen, Firm Characteristics and Informed Trading: Implications for Asset Pricing (September 2011). Journal of Empirical Finance, Vol. 18, No. 5, 2011. Available at SSRN: https://ssrn.com/abstract=1334465 or http://dx.doi.org/10.2139/ssrn.1334465

Hadiye Aslan (Contact Author)

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

David Easley

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Soeren Hvidkjaer

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

HOME PAGE: http://www.hvidkjaer.net

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

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