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When is a firm's information asymmetry priced? The role of institutional investors

Version 2 2024-06-05, 00:10
Version 1 2018-08-02, 11:26
journal contribution
posted on 2024-06-05, 00:10 authored by HL Luong, HGL Nguyen, Xiangkang YinXiangkang Yin
This study reexamines the competing claims that probability of informed trading (PIN) is priced in the cross-section of stock returns while adjusted PIN (AdjPIN), the component of PIN related to information asymmetry, is not. We find that behind these seemingly contradicting conclusions is the role of institutional investors, and the pricing of PIN and AdjPIN depends on institutional ownership. Only for those stocks with low institutional ownership are both PIN and AdjPIN priced. Our findings imply that investors require compensation for information risk only from stocks with low institutional ownership.

History

Journal

International review of finance

Volume

15

Pagination

55-88

Location

Chichester, Eng.

ISSN

1369-412X

eISSN

1468-2443

Language

eng

Publication classification

C Journal article, C1.1 Refereed article in a scholarly journal

Copyright notice

2014, International Review of Finance Ltd.

Issue

1

Publisher

John Wiley & Sons