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Marketwide Private Information in Stocks: Forecasting Currency Returns

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Author Info
RUI ALBUQUERQUE
EVA DE FRANCISCO
LUIS B. MARQUES

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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 co-movement 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. Copyright (c) 2008 The American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2008.01398.x
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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 63 (2008)
Issue (Month): 5 (October)
Pages: 2297-2343
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Handle: RePEc:bla:jfinan:v:63:y:2008:i:5:p:2297-2343

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March. [Downloadable!] (restricted)
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  10. Martin D. D. Evans & Richard K. Lyons, 2007. "Exchange Rate Fundamentals and Order Flow," NBER Working Papers 13151, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  23. Gregory H. Bauer & Clara Vega, 2004. "The Monetary Origins of Asymmetric Information in International Equity Markets," Working Papers 04-47, Bank of Canada. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Burnside, A Craig & Eichenbaum, Martin & Rebelo, Sérgio, 2007. "Understanding the Forward Premium Puzzle: A Microstructure Approach," CEPR Discussion Papers 6399, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Jacob Gyntelberg & Mico Loretan & Tientip Subhanij & Eric Chan, 2009. "Private information, stock markets, and exchange rates," BIS Working Papers 271, Bank for International Settlements. [Downloadable!]
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