Information-Based Trading, Price Impact of Trades, and Trade Autocorrelation

35 Pages Posted: 27 May 2004

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Mingsheng Li

Bowling Green State University - College of Business Administration

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Abstract

In this study we show that both the price impact of trades and serial correlation in trade direction are positively and significantly related to the probability of information-based trading (PIN). The positive relation remains significant even after controlling for the effects of stock attributes. Higher trading activity (i.e., shorter intervals between trades) induces both larger price impact and stronger positive serial correlation in trade direction. The effect of time interval between trades on quote revision is stronger for stocks with higher PIN values. These results provide direct empirical support for the information models of trade and quote revision.

Keywords: Quote revisions, asymmetric information, price impact, trade autocorrelation

JEL Classification: G14

Suggested Citation

Chung, Kee H. and Li, Mingsheng and McInish, Thomas H., Information-Based Trading, Price Impact of Trades, and Trade Autocorrelation. Available at SSRN: https://ssrn.com/abstract=551143 or http://dx.doi.org/10.2139/ssrn.551143

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Mingsheng Li

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
806
rank
28,097
Abstract Views
3,581
PlumX Metrics