← Search

Cross-Sectional Identification of Private Information

Dion Bongaerts1; Dominik Rösch2; Mathijs Van Dijk1

1 Rotterdam School of Management Erasmus University · 2 University at Buffalo

The Review of Asset Pricing Studies 2026 open access

Abstract We propose a new private information measure based on a model of strategic trade optimization in the cross section of securities. Investors receive liquidity and private information shocks and optimize trading across securities, accounting for price impact (Kyle’s λ). The model yields a simple private information measure: λ×OIB (order imbalance). Intuitively, order imbalance is more likely to be information-driven when trading is expensive. We validate our measure by showing that it is greater for smaller firms with higher analyst dispersion, peaks with insider trades, helps explain return reversals, predicts return volatility, and increases before M&A announcements and after analyst coverage terminations. (JEL G11, G12, G14)

DOI
10.1093/rapstu/raaf009
Volume
16 (1)
Pages
1-49
Language
en
Export
BibTeX
Sources
openalex crossref