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Inventory Information

Author

Listed:
  • H. Henry Cao

    (Kenan-Flager School of Business, University of North Carolina)

  • Martin D. Evans

    (Georgetown University and National Bureau of Economic Research)

  • Richard K. Lyons

    (Haas School of Business, University of California, Berkeley, and National Bureau of Economic Research)

Abstract

When information about fundamentals is symmetric, can information-based trade still arise? Consider bond and foreign exchange (FX) markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of asymmetric information—inventory information—that is unrelated to fundamentals but still forecasts future price (by forecasting future discount factors). We find that inventory information in FX does indeed forecast discount factors and does so over both short and long horizons. The permanent effect from inventory information ranges between 15% and 30% of that from public information.

Suggested Citation

  • H. Henry Cao & Martin D. Evans & Richard K. Lyons, 2006. "Inventory Information," The Journal of Business, University of Chicago Press, vol. 79(1), pages 325-364, January.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:1:p:325-364
    DOI: 10.1086/497413
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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