The Effects of Information-Based Trading on Daily Returns and Risk of Individual Stocks

61 Pages Posted: 17 Aug 2013

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Jing Zhao

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Date Written: May 9, 2013

Abstract

This paper investigates the dynamic relation between information-based trading of a stock and its daily return and risk. It develops a theoretical model to motivate the regression specifications for empirical analysis. Based on two samples of stocks, we demonstrate that the expected trading imbalance determines stock daily return while the expected total trades determine volatility. Trade imbalance arisen from private information plays a dominant role in determining return while trades due to disputable public information are the dominant contributor to the risk. Public-information trading is further identified to be associated with the contemporaneous idiosyncratic risk rather than systematic risk.

Suggested Citation

Yin, Xiangkang and Zhao, Jing, The Effects of Information-Based Trading on Daily Returns and Risk of Individual Stocks (May 9, 2013). 26th Australasian Finance and Banking Conference 2013. Available at SSRN: https://ssrn.com/abstract=2311128 or http://dx.doi.org/10.2139/ssrn.2311128

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jing Zhao

La Trobe University - School of Economics and Finance ( email )

Dept of Economics and Finance
La Trobe University
Bundoora, VIC 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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