Informed trading, information uncertainty, and price momentum

Yifan Chen, Huainan Zhao

Research output: Contribution to journalArticle

25 Citations (Scopus)

Abstract

In this paper we investigate the effects of informed trading (PIN) and information uncertainty in determining price momentum. We find that trading strategies based on buying high-uncertainty good-news stocks and shorting high-uncertainty bad-news stocks work well when limited to high-PIN stocks, while stocks with low-PIN do not exhibit price continuations, even when the uncertainty level of those stocks is high. In contrast, momentum returns are always significant for high-PIN stocks, irrespective of information uncertainty. Overall, we show that the informed trading effect is both independent of and stronger than that of information uncertainty in determining price momentum.
Original languageEnglish
Pages (from-to)2095-2109
Number of pages15
JournalJournal of Banking & Finance
Volume36
Issue number7
DOIs
Publication statusPublished - 2012

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