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Marketwide Private Information in Stocks : Forecasting Currency Returns

By:

Albuquerque Rui

Material type: Article

ArticleLanguage: ENG Series: ; 63Publication details: Oct 2008 0Edition: 5Description: 2297-2343 PpDDC classification:

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Summary: We present a model of equity trading with informed and uninformed investors where informed investors trade on firm-specific and marketwide private information. The model is used to identify the component of order flow due to marketwide private information. Estimated trades driven by marketwide private information display little or no correlation with the first principal component in order flow. Indeed, we find that co-movement in order flow captures variation mostly in liquidity trades. Marketwide private information obtained from equity market data forecasts industry stock returns, and also currency returns.

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Item type	Current library	Call number	Status	Date due	Barcode
Articles	Main Library	Alb (Browse shelf(Opens below))	Available		AR10410

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We present a model of equity trading with informed and uninformed investors where informed investors trade on firm-specific and marketwide private information. The model is used to identify the component of order flow due to marketwide private information. Estimated trades driven by marketwide private information display little or no correlation with the first principal component in order flow. Indeed, we find that co-movement in order flow captures variation mostly in liquidity trades. Marketwide private information obtained from equity market data forecasts industry stock returns, and also currency returns.

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