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Gordon, Narelle

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  • Paper Title: Informed Trading and Price Efficiency
  • Department Affiliation: Applied Finance and Actuarial Studies
  • Supervisor's Names:
    • Doctor Edward Watts
    • Associate Professor Geoff Loudon


To examine the impact of informed trade on cross autocorrelations in stock returns in Australia.


The first study, to our knowledge, that examines the role of information risk in lead-lag return relationships  using ASX intraday trading data.

Key literature/theoretical perspective:

Stocks of small firms with low institutional ownership, that have little coverage by financial analysts and have lower stock turnover  are considered less  recognised (Merton 1987) and tend to be ‘follower’ stocks in terms of the observed lead-lag effects in stock returns (Hou& Moskowitz, 2005; Lo and MacKinlay, 1990; Sias and Starks, 1997; Brennan et al, 1993; Chordia and Swaminathan, 2000). We posit that the effect is influenced by the information environment of the firm; the risk of informed trade will tend to reduce the category-relevance of information contained in stock returns.


We use Easley, Kiefer,  O’Hara and  Paperman’s  ( 1996 “Liquidity, Information, and Infrequently Traded Stocks.” Journal of Finance 51(4), 1405–1436) measure of the probability of informed trade (‘PIN’) to identify stocks and portfolios that have high(low) information risk. We consider the association between PIN and observed return autocovariances.

Research limitations/implications:

The importance of a firm’s information structure to price efficiency and gradual information diffusion.


PIN, Information Risk, Delay