Review of Financial Studies Vol. 32 No. 12 2019
Chasing Private Information
Abstract
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. Received January 11, 2017; editorial decision December 17, 2018 by Editor Andrew Karolyi.
- DOI
- 10.1093/rfs/hhz029
- Volume
- 32
- Issue
- 12
- Pages
- 4997-5047
- Language
- en
- Sources
- crossref openalex