Redundant Information and Predictable Intraday Returns

50 Pages Posted: 3 Dec 2018

See all articles by Michael P Carniol

Michael P Carniol

Rutgers Business School -- Newark and New Brunswick

Date Written: October 2, 2018

Abstract

This paper examines how well investors distinguish between genuinely novel private information and information that already is priced (labeled "redundant information"). We derive a structural model of stock price returns that identifies investors’ non-Bayesian weighting of redundant information distinctly from information asymmetry, transaction costs, and serially correlated liquidity trader demand. We estimate this model using five-minute, 12-minute, and 30-minute returns and find that, on average, investors behave as if over 47 percent of the information content in the immediately prior price change is private information. These results suggest an information-processing mechanism that drives momentum and mean reversion in intraday returns.

Suggested Citation

Carniol, Michael P, Redundant Information and Predictable Intraday Returns (October 2, 2018). Available at SSRN: https://ssrn.com/abstract=3283919 or http://dx.doi.org/10.2139/ssrn.3283919

Michael P Carniol (Contact Author)

Rutgers Business School -- Newark and New Brunswick

1 Washington Park
Newark, NJ 07102
United States

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