PT - JOURNAL ARTICLE
AU - Dey, Malay K.
TI - Is Information Risk Really a Determinant of Security Returns? <em>Evidence from TORQ</em>
AID - 10.3905/jot.2010.5.3.051
DP - 2010 Jun 30
TA - The Journal of Trading
PG - 51--58
VI - 5
IP - 3
4099 - http://jot.pm-research.com/content/5/3/51.short
4100 - http://jot.pm-research.com/content/5/3/51.full
AB - Using a sample of NYSE securities, this article investigates whether there is an information risk premium in securities return. The author uses two proxies for informationâ€” probability of information trading (PIN) and institutional tradingâ€”and determines how those impact securities return after controlling for other known risk factors. Intraday transactions data from TORQ are used to compute PIN, denoting information content in trades from the maximum-likelihood estimates of the parameters of a mixture model. The main finding is that only beta and volatility, denoted by price inverse and standard deviation of returns, respectively, are the primary determinants of security returns, but PIN and institutional trading, proxies for information risk, are not priced in security returns. Beta and volatility are derived from market prices and hence fall under price risk. Turnover, a likely proxy for both liquidity and price risk, is also a significant determinant of return. Contrary to the findings of Easley et al. [2002], this article shows that information risk is not a significant determinant of security return.TOPICS: VAR and use of alternative risk measures of trading risk, statistical methods, exchanges/markets/clearinghouses