Research Articles

Factoring Information into Returns

David Easleya1, Soeren Hvidkjaera2 and Maureen O’Haraa3

a1 Department of Economics, Cornell University, 450 Uris Hall, Ithaca, NY 14853.

a2 Copenhagen Business School, Solbjerg Plads 3, 2000 Frederiksberg, Denmark.

a3 Johnson Graduate School of Management, Cornell University, 447 Sage Hall, Ithaca, NY 14853.


We examine the potential profits of trading on a measure of private information (PIN) in a stock. A zero-investment portfolio that is size-neutral but long in high PIN stocks and short in low PIN stocks earns a significant abnormal return. The Fama-French, momentum, and liquidity factors do not explain this return. However, significant covariation in returns exists among high PIN stocks and among low PIN stocks, suggesting that PIN might proxy for an underlying factor. We create a PIN factor as the monthly return on the zero-investment portfolio above and show that it is successful in explaining returns to independent PIN-size portfolios. We also show that it is robust to inclusion of the Pástor-Stambaugh liquidity factor and the Amihud illiquidity factor. We argue that information remains an important determinant of asset returns even in the presence of these additional factors.


The authors thank Joel Hasbrouck, Ingrid Werner, participants at the Morgan Stanley Equity Market Microstructure Research Conference and European Finance Association Meetings (Maastricht), Yakov Amihud (the referee), and Stephen Brown (the editor) for helpful comments. We are grateful to Anchada Charoenrook and Jennifer Conrad for providing us with the Amihud factor. We thank Morgan Stanley for research support. The authors are solely responsible for the contents of this paper.