Chasing private information

Chasing private information

Using over 5,000 trades unequivocally based on nonpublic information about firm fundamentals, we find that asymmetric information proxies display abnormal values on days with informed trading. Volatility and volume are abnormally high, whereas illiquidity is low, in equity and option markets. Daily...

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Bibliographic Details
Main Authors: KACPERCZYK, Marcin, PAGNOTTA, Emiliano Sebastian
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2019
Subjects:
Private information
information signals
adverse selection proxies
insider trading
trading strategies
liquidity
asset prices
abnormal volume
stock markets
option markets
volatility
SEC
Finance and Financial Management
Portfolio and Security Analysis
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/7027
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8026/viewcontent/Chasing_Private_Information_av.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:Using over 5,000 trades unequivocally based on nonpublic information about firm fundamentals, we find that asymmetric information proxies display abnormal values on days with informed trading. Volatility and volume are abnormally high, whereas illiquidity is low, in equity and option markets. Daily returns reflect the sign of private signals, but bid-ask spreads are lower when informed investors trade. Market makers' learning under event uncertainty and limit orders help explain these findings. The cross-section of information duration indicates that traders select days with high uninformed volume. Evidence from the U.S. SEC Whistleblower Reward Program and the FINRA involvement addresses selection concerns.

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