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The Noninformation Cost of Trading and Its Relative Importance inAsset Pricing

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  • Kee H. Chung
  • Sahn-Wook Huh

Abstract

We show that the noninformation component of trading costs is priced in thecross-section of stock returns using intraday data for NYSE/AMEX stocks. Moreimportantly, we show that the noninformation component is much larger and morestrongly related to stock returns than is the adverse-selection component,indicating that the noninformation component plays a more important role inasset pricing than does the adverse-section component. We conduct a variety ofrobustness tests and show that our main results hold for different estimationmethods, measures of the adverse-selection cost, subsample periods, and controlvariables. We offer plausible explanations for these results.

Suggested Citation

  • Kee H. Chung & Sahn-Wook Huh, 2016. "The Noninformation Cost of Trading and Its Relative Importance inAsset Pricing," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 6(2), pages 261-302.
    • Handle: RePEc:oup:rasset:v:6:y:2016:i:2:p:261-302.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raw003
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    Citations

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    Cited by:

    1. Kim, Jinyong & Kim, Yongsik, 2023. "Which stock price component drives the Amihud illiquidity premium?," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    2. Yang, Yung Chiang & Zhang, Bohui & Zhang, Chu, 2020. "Is information risk priced? Evidence from abnormal idiosyncratic volatility," Journal of Financial Economics, Elsevier, vol. 135(2), pages 528-554.
    3. Allen Carrion & Madhuparna Kolay, 2020. "Trade signing in fast markets," The Financial Review, Eastern Finance Association, vol. 55(3), pages 385-404, August.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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