Momentum and asymmetric information

Tian Liang (Cornerstone Research, Washington, DC, USA)

China Finance Review International

ISSN: 2044-1398

Publication date: 8 June 2012

Abstract

Purpose

The purpose of this paper is to examine the implications of asymmetric information for price evolution and investor behavior under a rational expectations framework.

Design/methodology/approach

The author presents a simple asymmetric information‐based asset‐pricing model to show that private information and its revelation can generate price momentum. To empirically test this implication of the model, Easley et al.'s probability of information‐based trade (PIN) is used as a proxy for private information.

Findings

High PIN firms are found to have larger magnitudes of momentum effect even after controlling for size. The abnormal returns are both economically and statistically significant, and cannot be explained by the Fama‐French factors.

Originality/value

This study provides both an information‐based theory to explain the momentum anomaly and empirical support for the theory.

Keywords

Citation

Liang, T. (2012), "Momentum and asymmetric information", China Finance Review International, Vol. 2 No. 3, pp. 208-230. https://doi.org/10.1108/20441391211231015

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.
To rent this content from Deepdyve, please click the button.