Marketwide Private Information in Stocks: Forecasting Currency Returns

67 Pages Posted: 1 Mar 2006 Last revised: 28 Dec 2014

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Eva de Francisco

Congressional Budget Office (CBO) - Macroeconomic Analysis Division

Luis Brandao Marques

International Monetary Fund - Monetary and Capital Markets Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 8, 2008

Abstract

We present a model of equity trading with informed and uninformed investors where informed investors trade on firm-specific and marketwide private information. The model is used to identify the component of order flow due to marketwide private information. Estimated trades driven by marketwide private information display little or no correlation with the first principal component in order flow. Indeed, we find that comovement in order flow captures variation mostly in liquidity trades. Marketwide private information obtained from equity market data forecasts industry stock returns, and also currency returns.

Keywords: Marketwide private information, firm-specific private information, order flow, principal components, currency returns, equity returns

JEL Classification: F31, G11, G14

Suggested Citation

Albuquerque, Rui A. and de Francisco, Eva and Brandao Marques, Luis, Marketwide Private Information in Stocks: Forecasting Currency Returns (January 8, 2008). Journal of Finance, Vol. 63, 2008. Available at SSRN: https://ssrn.com/abstract=887522 or http://dx.doi.org/10.2139/ssrn.887522

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Eva De Francisco

Congressional Budget Office (CBO) - Macroeconomic Analysis Division ( email )

2nd and D Streets, SW
Washington, DC 18042
United States

Luis Brandao Marques

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
2026238308 (Phone)
2025898308 (Fax)

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