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Sidelined Investors, Trading-Generated News, and Security Returns

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Author Info

  • H. Henry Cao

    (University of North Carolina)

  • Joshua D. Coval

    (Harvard University)

  • David Hirshleifer

    (Ohio State University)

Abstract

This article studies information blockages and the asymmetric release of information in a security market with fixed setup costs of trading. In this setting, "sidelined" investors may delay trading until price movements validate their private signals. Trading thereby internally generates the arrival of further news to the market. This leads to (1) negative skewness following price run-ups and positive skewness following price rundowns (even though the model is ex ante symmetric), (2) a lack of correspondence between large price changes and the arrival of external information, and (3) increases in volatility following large price changes. Copyright 2002, Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 15 (2002)
Issue (Month): 2 (March)
Pages: 615-648

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Handle: RePEc:oup:rfinst:v:15:y:2002:i:2:p:615-648

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Cited by:
  1. Alvarez-Ramírez, José & Rodríguez, Eduardo, 2012. "Temporal variations of serial correlations of trading volume in the US stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(16), pages 4128-4135.
  2. Jacques Olivier & José M. Marin, 2006. "The Dog That Did Not Bark: Insider Trading and Crashes," Working Papers 241, Barcelona Graduate School of Economics.
  3. Altı, Aydoğan & Kaniel, Ron & Yoeli, Uzi, 2012. "Why do institutional investors chase return trends?," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 694-721.
  4. Joseph Chen & Harrison Hong & Jeremy C. Stein, 2000. "Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices," NBER Working Papers 7687, National Bureau of Economic Research, Inc.
  5. Ben-David, Itzhak & Hirshleifer, David, 2011. "Beyond the Disposition Effect: Do Investors Really Like Gains More Than Losses?," Working Paper Series 2011-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  6. Biais, Bruno & Weber, Martin, 2008. "Hindsight Bias and Investment Performance," IDEI Working Papers 476, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Hashmi, Aamir R. & Tay, Anthony S., 2007. "Global regional sources of risk in equity markets: Evidence from factor models with time-varying conditional skewness," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 430-453, April.
  8. Covrig, Vicentiu & Ng, Lilian, 2004. "Volume autocorrelation, information, and investor trading," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2155-2174, September.
  9. Lai, Jing-yi, 2012. "Shock-dependent conditional skewness in international aggregate stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 72-83.
  10. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9142, University Library of Munich, Germany.
  11. Blau, Benjamin M. & Smith, Jason M., 2014. "Autocorrelation in daily short-sale volume," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 31-41.

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