Information Flows and Systematic Risk

Society for Financial Studies Cavalcade

39 Pages Posted: 8 Jul 2021

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

David Michayluk

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Vinay Patel

University of Technology Sydney (UTS)

Tālis J. Putniņš

University of Technology Sydney (UTS); Stockholm School of Economics, Riga

Date Written: May 25, 2020

Abstract

The arrival of new information is a source of systematic risk for the holder of a financial security. Using several measures of information flows, we show that a stock’s sensitivity to market-wide information flow is associated with a robust cross-sectional return premium that is distinct from other return premia. We find that the amount of information impounded in prices through trading has increased in recent years consistent with declining trading costs and the rise of algorithmic trading. Consequently, the information flows risk premium is increasing through time.

Keywords: information flows, asset pricing, return premium, systematic risk

JEL Classification: G14

Suggested Citation

Easley, David and Michayluk, David and O'Hara, Maureen and Patel, Vinay and Putnins, Talis J., Information Flows and Systematic Risk (May 25, 2020). Society for Financial Studies Cavalcade, Available at SSRN: https://ssrn.com/abstract=3878524 or http://dx.doi.org/10.2139/ssrn.3878524

David Easley

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

David Michayluk

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Finance Discipline Group
UTS Business
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
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Australia

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Vinay Patel (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Talis J. Putnins

University of Technology Sydney (UTS) ( email )

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Broadway
Sydney
Australia
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Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia
+371 67015841 (Phone)

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