Assessment of Asymmetric Information Cost in Indian Stock Market: A Sectoral Approach

Abstract

Bid-ask spread, along with profit, also encompass the impact of asymmetric information cost and order processing cost. Asymmetric information influences stock prices with varying degree of investors’ perception. Estimation of asymmetric information cost and its determinants have been explored significantly under low-frequency trading. The literature hardly attempts to study asymmetric information cost under high-frequency trading (HFT). Asymmetric information cost significantly influences bid-ask spread, and hence the nature of its impact under different market conditions needs to be analyzed under HFT. The study attempts to estimate asymmetric information cost in HFT and analyze its determinants under different industry sectors and market conditions. The study followed Affleck-Graves et al. (1994 , The Journal of Finance, 49(4), 1471–1488) model to estimate the asymmetric information cost using 5 minutes interval data for a period of 82 trading days. Information gets reflected in equity through the movement in price, variation in trading volume, and return volatility. The study has found share price, traded volume, return volatility and trading frequency as the major determinants of asymmetric information cost in different market conditions. The findings of the study have significant implications for market microstructure for trading, lowering information asymmetry in market and enhancing market quality.

Bank loan information and information asymmetry in the stock market: evidence from China

“…Despite a rich body of literature focusing on information asymmetry (e.g., Asongu et al. 2019 ; Pan and Misra 2020 ; Ha et al. 2021 ; Zhao 2021 ; Ioannidou et al.…”

Asymmetric information and daily stock prices in Brazil

“…This can cause difficulty when measuring the liquidity of a company: the company may be listed in the stock market, but the measure of volume of trades in its stock can be influenced by asymmetry. Pan and Misra (2020) examined the cost of asymmetric information of 25 stocks of the main sectors of the Indian Stock Market, processing as many as 45 million data points. The authors computed asymmetric information measures from the bid-ask spreads, and by segregating the part of the spreads that represents the cost of the information needed to verify its determinants.…”