Econometrics
Neda Esmaeeli; Maryam Ihami
Abstract
This paper aims to assess the existence of information asymmetry on the Iranian stock market and its impact on expected portfolio returns by applying Volume-Synchronized Probability of Informed Trading (VPIN) as a measurement tool. To this end, we used the actual data of 40 companies on the Tehran Stock ...
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This paper aims to assess the existence of information asymmetry on the Iranian stock market and its impact on expected portfolio returns by applying Volume-Synchronized Probability of Informed Trading (VPIN) as a measurement tool. To this end, we used the actual data of 40 companies on the Tehran Stock Exchange (TSE) within the period from March 22, 2018 to March 19, 2020. The outcomes highlight the presence of moderate toxicity levels in the orders of these stocks. Since asymmetric information leads to a risk to investors, they may ask for a premium to trade riskier assets based on the information level, which means that market makers may incorporate the information risk into the pricing of assets. To check this, we investigated the effect of asymmetric information risk on the stock returns on the TSE by adding a factor about the level of order toxicity to the 3, 4, and 5-factor asset pricing models. According to our findings, we affirm that the Iranian stock market priced the asymmetric information risk during the time interval from March 22, 2018, to March 19, 2020. Therefore, it is essential to take into account the information risk factor besides a combination of factors such as market, size, profitability, and investment to obtain the most efficient explanation for the returns of portfolios.
