ProbInformedTrading · Liquidity · Easley, Hvidkjaer and O'Hara (2002)

Probability of Informed Trading

Long minus short quintile portfolio, value-weighted, market-adjusted. Quarterly, 1994Q1 to 2013Q4.

Expected return · posterior mean, % per quarter

Next quarter

2.23%

95% interval −0.09% to 4.83%

Next year

2.21%

95% interval −0.32% to 4.91%

Next five years

2.16%

95% interval −1.14% to 5.27%

Next quarter

2.90%

95% interval 0.44% to 5.38%

Next year

2.81%

95% interval 0.24% to 5.46%

Next five years

2.56%

95% interval −0.72% to 5.67%

Next quarter

1.44%

95% interval −2.02% to 5.35%

Next year

1.48%

95% interval −2.25% to 5.44%

Next five years

1.59%

95% interval −2.95% to 5.93%

Next quarter

1.83%

95% interval −1.76% to 5.80%

Next year

1.85%

95% interval −2.00% to 5.89%

Next five years

1.90%

95% interval −2.81% to 6.39%

Cumulative market-adjusted return

+577% since 1994Q1 · log scale

Window	Mean	Vol.	Sharpe	t
1994Q1–2013Q4	14.30%	28.79%	0.50	2.22
2009Q1–2013Q4	−12.80%	32.59%	−0.39	−0.88
2013Q1–2013Q4	16.86%	14.54%	1.16	1.16
1994Q1–2013Q4	15.62%	29.36%	0.53	2.38
2009Q1–2013Q4	−4.41%	35.73%	−0.12	−0.28
2013Q1–2013Q4	17.61%	21.81%	0.81	0.81
1994Q1–2013Q4	11.05%	41.34%	0.27	1.20
2009Q1–2013Q4	−22.62%	39.68%	−0.57	−1.27
2013Q1–2013Q4	3.24%	8.22%	0.39	0.39
1994Q1–2013Q4	12.54%	42.85%	0.29	1.31
2009Q1–2013Q4	−18.86%	45.39%	−0.42	−0.93
2013Q1–2013Q4	−3.15%	14.50%	−0.22	−0.22

Horizon	Mean	95% interval	P(neg)
Next quarter	0.156	−0.006 – 0.336	0.03
Next year	0.154	−0.022 – 0.342	0.04
Next five years	0.150	−0.079 – 0.367	0.10
Next quarter	0.199	0.030 – 0.367	0.01
Next year	0.192	0.016 – 0.372	0.02
Next five years	0.174	−0.049 – 0.386	0.06
Next quarter	0.070	−0.099 – 0.259	0.22
Next year	0.072	−0.109 – 0.263	0.23
Next five years	0.077	−0.143 – 0.287	0.24
Next quarter	0.086	−0.083 – 0.271	0.16
Next year	0.087	−0.094 – 0.275	0.18
Next five years	0.089	−0.131 – 0.298	0.20