Finance Seminar（2015-29）

Topic:Is Information Risk Priced? Evidence from Abnormal Idiosyncratic Volatility

Speaker:Bohui Zhang, UNSW Australia

Time:Wednesday, 23 September, 10:00-11:30

Location:Room K01, Guanghua Hotel

Abstract:We propose a new, price-based measure of information risk called abnormal idiosyncratic volatility (AIV) that captures information asymmetry faced by uninformed investors. AIV is the idiosyncratic volatility prior to information events in excess of normal levels. Using earnings announcements as information events, we show that AIV is positively associated with abnormal insider trading, short selling, and institutional trading during pre-earnings-announcement periods. We find that stocks with high AIV earn economically and statistically larger future returns than stocks with low AIV. Taken together, our findings support the notion that information risk is priced.