Faculty of Business Administration

Information Asymmetry and Cross-Sectional Returns: A Re-Examination of the Relationship between Stock Return and the Adjusted Probability of Informed Trading

Dr. Zhang Shaojun
Assistant Professor, School of Accounting and Finance
Faculty of Business
The Hong Kong Polytechnic University


We re-examine the relationship between stock return and the adjusted probability of informed trading (AdjPIN) for about 40,000 firm-years of NYSE/AMEX listed firms. We obtain two AdjPIN estimates for each firm-year pair: the first is estimated with all daily observations in the year, while the second is estimated after excluding 20 daily observations around each earnings announcement date. On average, the second estimate is greater than the first one. The difference between these two estimates is significantly smaller for firms that have large market capitalization or are actively traded. With both sets of estimates, the Fama-MacBeth regression analysis shows a significant and positive relationship between stock return and AdjPIN in the period between 1984 and 2005. Our findings support that the information asymmetry measure AdjPIN plays a role in explaining the cross-section of stock returns, though its effect appears to vary across time periods.

Date: March 5, 2015 (Thursday)

Time: 14:30~16:00

Venue: Faculty of Business Administration, E22-3007

A Short Biography of Dr. Zhang
Dr. Zhang Shaojun serves as Assistant Professor, School of Accounting and Finance, Faculty of Business, The Hong Kong Polytechnic University. Before joining The Hong Kong Polytechnic University, Dr. Zhang was the Assistant Professor, Division of Banking and Finance at Nanyang Technological University, Singapore. He is the Associate of the Society of Actuaries (ASA) and Member of the Board of Directors of the Asian Finance Association. His research interests include Empirical asset pricing, market microstructure and Chinese markets.

Dr. Zhang got his B.E., Electronics & Computer Technology and B.Sc., Applied Mathematics at Tsinghua University. He then got his M.Sc., Statistics and Ph.D., Statistics with concentration in Finance at Florida State University, USA.