Information-Based Trading and Autocorrelation in Individual Stock Returns

69 Pages Posted: 29 Sep 2015

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Jing Zhao

La Trobe University - La Trobe Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 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 due to investor disagreement, leading return autocorrelation to be more negative. Contrarian trading strategies conditional on daily measures of investor 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 (September 20, 2015). Available at SSRN: https://ssrn.com/abstract=2666433 or http://dx.doi.org/10.2139/ssrn.2666433

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 - La Trobe Business School ( email )

Australia

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