Informed Trading and Expected Returns

47 Pages Posted: 5 Jan 2013 Last revised: 17 Jan 2013

See all articles by James J. Choi

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

Li Jin

University of Oxford - Said Business School

Li Jin

Peking University - Department of Finance

Hongjun Yan

DePaul University

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

Does information asymmetry affect the cross-section of expected stock returns? We explore this question using representative portfolio holdings data from the Shanghai Stock Exchange. We show that institutional investors have a strong information advantage, and that past aggressiveness of institutional trading in a stock positively predicts institutions' future information advantage in this stock. Sorting stocks on this predictor and controlling for other correlates of expected returns, we find that the top quintile's average annualized return in the next month is 10.8% higher than the bottom quintile's, indicating that information asymmetry increases expected returns.

Suggested Citation

Choi, James J. and Jin, Li and Jin, Li and Yan, Hongjun, Informed Trading and Expected Returns (January 2013). NBER Working Paper No. w18680. Available at SSRN: https://ssrn.com/abstract=2196743

James J. Choi (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Li Jin

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Li Jin

Peking University - Department of Finance ( email )

Beijing
China

Hongjun Yan

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/view/hongjunyan

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