Is information risk priced for NASDAQ-listed stocks?

Abstract

Easley et al. (J Finance 57:2185-2221, building upon the asset pricing model of Fama and French (J Finance 47:427-465, 1992), show that the probability of informed trading (PIN) is a determinant of asset returns for NYSE-listed securities. We extend this work by examining whether the PIN is a predictive factor for NASDAQ stocks, as many studies document significant differences between NYSE and NASDAQ listed securities. In the process we examine whether the use of PIN is appropriate for NASDAQlisted securities. We find that PIN and certain stock characteristics correlate differently for our sample of NASDAQ stocks than that of Easley et al. sample of NYSE stocks. We also determine that the risk of informed trading is only weakly priced for NASDAQ stocks. Contrary to Easley et al. we do not find evidence that excess returns increases as PIN increases.

A PIN per day shows what news convey: the intraday probability of informed trading

“…Japan (Luo et al 2014), Taiwan (Chang and Lin 2014) or China (Cheung and Liu 2014). 2 Fuller et al (2009) can only partly confirm Easley et al's results when replicating their study on NAS-DAQ data. See Duarte and Young (2008) and successional literature for further references to name a few prominently published studies.…”

Earnings management and market liquidity

“…A recent dissenting view is Mohanram and Rajgopal (2009) who find against a relationship between PIN and ex-ante measures of cost of capital. Further, Fuller et al (2010) find PIN is only weakly priced for NASDAQ stocks. In sum, there is ample theory and corroborating empirical evidence to suggest that information costs are priced, which motivates research into the determinants of information costs at the firm level such as earnings management practices.…”

The demand for accounting information: young NASDAQ listings versus S&P 500 NYSE listings

“…Since managers in small and new firms face difficulty in credibly conveying information about their financial conditions, financial statements are an important communication tool for them to attract investors. However, accounting research about enterprises listed on NASDAQ and information about them are limited (e.g., Skinner 1994; Klein and Mohanran 2005;Cuñado et al 2009;Fuller et al 2010). I attempt to shed light on the role of accounting information for small, less well-known and young firms.…”

“…Prior studies show significant difference between firms listed on the NASDAQ and firms listed on NYSE (Lee 1993;Fuller et al 2010). The S&P 500 firms listed on NYSE account for a large proportion of total assets in US equity markets.…”