Information-Based Trading and Autocorrelation in Individual Stock Returns

56 Pages Posted: 17 Aug 2015

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Jing Zhao

La Trobe University

Multiple version iconThere are 2 versions of this paper

Date Written: July 5, 2015

Abstract

Applying a recently developed approach, the paper estimates the daily arrival rates of buy and sell orders originated from different trading motives for each stock in a sample of NYSE-listed companies. Based on these arrival rates, it shows that stock return tends to continue on consecutive days when privately-informed trading prevails, leading to positive return autocorrelation. But return is more likely to reverse itself on days with continuous trading on dispersion in beliefs, leading return autocorrelation to be more negative. Contrarian trading strategies conditional on daily measures of investment disagreement can yield economically and statistically significant excess returns.

Keywords: Information-based trading, return autocorrelation, private information, dispersion in beliefs

JEL Classification: D82, G12, G14

Suggested Citation

Yin, Xiangkang and Zhao, Jing, Information-Based Trading and Autocorrelation in Individual Stock Returns (July 5, 2015). FIRN Research Paper No. 2645236; 28th Australasian Finance and Banking Conference. Available at SSRN: https://ssrn.com/abstract=2645236 or http://dx.doi.org/10.2139/ssrn.2645236

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

Jing Zhao (Contact Author)

La Trobe University ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

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