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When is a Firm's Information Asymmetry Priced? The Role of Institutional Investors

International Review of Finance, Vol. 15, Issue 1, pp. 55-88, 2015

34 Pages Posted: 4 Mar 2015

See all articles by Hoang Luong

Hoang Luong

The University of Queensland - UQ Business School

Lily Nguyen

The University of Queensland - UQ Business School

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: March 2015

Abstract

This study reexamines the competing claims that probability of informed trading (PIN) is priced in the cross‐section of stock returns while adjusted PIN (AdjPIN), the component of PIN related to information asymmetry, is not. We find that behind these seemingly contradicting conclusions is the role of institutional investors, and the pricing of PIN and AdjPIN depends on institutional ownership. Only for those stocks with low institutional ownership are both PIN and AdjPIN priced. Our findings imply that investors require compensation for information risk only from stocks with low institutional ownership.

JEL Classification: G3, G14, G32

Suggested Citation

Luong, Hoang and Nguyen, Lily and Yin, Xiangkang, When is a Firm's Information Asymmetry Priced? The Role of Institutional Investors (March 2015). International Review of Finance, Vol. 15, Issue 1, pp. 55-88, 2015. Available at SSRN: https://ssrn.com/abstract=2573370 or http://dx.doi.org/10.1111/irfi.12038

Hoang Luong (Contact Author)

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Lily Nguyen

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Xiangkang Yin

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

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