Post by Sapphire Capital on Sept 8, 2008 10:46:49 GMT 4
Is Information Risk Priced?: Evidence from the Price Discovery of Large Trades
Chuan-Yang Hwang
Nanyang Technological University (NTU)
Xiaolin Qian
Nanyang Technological University (NTU)
August 25, 2008
Abstract:
We develop an information risk measure that is based on the price discovery of the large trade, estimated via the Vector Error Correction model. The measure is built on the observations that informed traders prefer to trade in large size and that prices of large
trade and small trade are co-integrated. Using this new measure, we show that information risk is priced. The pricing impact of this information risk measure is robust to the control for the illiquidity effects. We also show that this new information risk measure dominates PIN in the asset pricing test.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1253271_code538038.pdf?abstractid=1253271&mirid=2
Chuan-Yang Hwang
Nanyang Technological University (NTU)
Xiaolin Qian
Nanyang Technological University (NTU)
August 25, 2008
Abstract:
We develop an information risk measure that is based on the price discovery of the large trade, estimated via the Vector Error Correction model. The measure is built on the observations that informed traders prefer to trade in large size and that prices of large
trade and small trade are co-integrated. Using this new measure, we show that information risk is priced. The pricing impact of this information risk measure is robust to the control for the illiquidity effects. We also show that this new information risk measure dominates PIN in the asset pricing test.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1253271_code538038.pdf?abstractid=1253271&mirid=2