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Informed trading, information uncertainty, and price momentum

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  • Chen, Yifan
  • Zhao, Huainan
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    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426612000787
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 7 ()
    Pages: 2095-2109

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:7:p:2095-2109

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Informed trading; Information uncertainty; Price momentum;

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