Information shocks and the cross section of expected returns
Loading...
Files
Date
2023
Authors
Tinic, Murat
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
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