Information shocks and the cross section of expected returns

Loading...
Thumbnail Image

Date

2023

Authors

Tinic, Murat

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Research Projects

Organizational Units

Journal Issue

Abstract

This paper examines the risk premium associated with information shocks in equity markets. For all stocks traded on Borsa Istanbul between March 2005 and December 2020, we calculate information shocks as unanticipated information asymmetry by focusing on changes in the proportion of the effective spread attributable to adverse selection. Our results indicate a significant return premium for an information shock strategy. Specifically, the return premium associated with the zero-investment information shock portfolios is 72 basis points. After controlling for several factors, we then document a significant predictive relationship between information shocks and future returns. The predictive power and the return premium associated with the information shock strategy are stronger after the initiation of the BISTECH trading system, which enables heterogeneity across investors vis-a-vis trade execution latency. These results suggest that, after the introduction of fast trading, the risks associated with information shocks become systemically important in the cost of equity.Copyright & COPY; 2022 Borsa Istanbul Anonim S,irketi. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Description

Keywords

Security Prices, Ask, Stocks, Risk, Equilibrium, Components, Market, Cost, Security Prices, Ask, Stocks, Risk, Equilibrium, Components, Asset pricing, Market, Information asymmetry, Cost, Transaction costs

Turkish CoHE Thesis Center URL

Citation

0

WoS Q

Q1

Scopus Q

Q1

Source

Borsa Istanbul Review

Volume

23

Issue

2

Start Page

378

End Page

401