PIN, Adjusted PIN, and PSOS: Difference of Opinion in the Korean Stock Market

Duarte and Young (2009) decompose PIN into adjusted probability of informed trading (AdjPIN) and probability of trading caused by symmetric order flow shocks (PSOS). We explore the sources of PSOS in the Korean stock market and examine the cross-sectional effect of PSOS on stock returns. Using transaction data with trader types and initiator information, we find that AdjPIN is not priced; PSOS is negatively priced, a finding that Lai et al. (2014) labeled “puzzling.” We find that the negative effect of PSOS comes from TURNOVER, the proxy for difference of opinion. After decomposing TURNOVER into trading activity of domestic institutional, domestic individual, and foreign investors, we find that domestic individual investors are the main drivers of the significant relationship between PSOS and expected returns. Our results show that individual investors generate PSOS through the difference of opinion on the significance of public news.