Asymmetric Impact of Informed Trading Activity on Stock Return Volatility

Alex YiHou  Huang; Ching-Liang  Chang

doi:10.4236/tel.2014.47071

Alex YiHou Huang^*, Ching-Liang Chang

Abstract: Prior research has shown that informed trading activity decreases the stock return volatility because trading causes stock prices to converge to fundamentals. On the contrary to existing studies, this paper documents the empirical asymmetric relation between informed trading activity and volatility. Stocks with relatively less private information are associated with lower participation of informed traders, and an increase in informed trading activity for those stocks would increase their return volatility. This finding is robust under both pooled and Fama-MacBeth regressions with various constructions for the realized volatility and probability of informed trading measurements.

Keywords: Stock Return Volatility, Informed Trading, Realized Volatility, PIN

Cite this paper: Huang, A. and Chang, C. (2014) Asymmetric Impact of Informed Trading Activity on Stock Return Volatility. Theoretical Economics Letters, 4, 568-573. doi: 10.4236/tel.2014.47071.

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