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