Factoring Information into Returns

Easley, David; Hvidkjaer, Soeren; O'Hara, Maureen

doi:10.2139/ssrn.556079

Factoring Information into Returns

EFA 2004 Maastricht Meetings Paper No. 4118

27 Pages Posted: 23 Jun 2004

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: July 27, 2005

Abstract

We examine the potential proﬁts of trading on a measure of private information (PIN) in a stock. A zero-investment portfolio which is size neutral, but long in high PIN stocks and short in low PIN stocks earns a signiﬁcant abnormal return. The Fama-French and momentum factors do not explain this return. However, signiﬁcant covariation in returns exists among high PIN stocks and among low PIN stocks, suggesting that PIN might proxy for an underlying factor. We create a PIN factor as the monthly return on the zero-investment portfolio above and show that it has some success in explaining returns to independent PIN-size portfolios.

JEL Classification: G12, M41

Suggested Citation: Suggested Citation

Easley, David and Hvidkjaer, Soeren and O'Hara, Maureen, Factoring Information into Returns (July 27, 2005). EFA 2004 Maastricht Meetings Paper No. 4118. Available at SSRN: https://ssrn.com/abstract=556079 or http://dx.doi.org/10.2139/ssrn.556079