Information Flows and Systematic Risk

Easley, David; Michayluk, David; O'Hara, Maureen; Patel, Vinay; Putniņš, Tālis J.

doi:10.2139/ssrn.3878524

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Information Flows and Systematic Risk

Society for Financial Studies Cavalcade, Forthcoming

41 Pages Posted: 8 Jul 2021 Last revised: 4 Mar 2022

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

Tālis J. Putniņš

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

Date Written: March 3, 2022

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: Suggested Citation

Easley, David and Michayluk, David and O'Hara, Maureen and Patel, Vinay and Putnins, Talis J., Information Flows and Systematic Risk (March 3, 2022). Society for Financial Studies Cavalcade, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3878524 or http://dx.doi.org/10.2139/ssrn.3878524