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A new estimation of institutional informed trading and firm transparency: Evidence from China

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  • Gu, Xin
  • Ying, Shan
  • Wang, Liangliang
  • Yu, Zhen
  • Sharma, Susan Sunila

Abstract

We examine the performance of a relatively new measure of institutional informed trading, namely the percentage change in the number of a stock's institutional investors using data from the Chinese stock market. We then introduce corporate transparency to quantify how informed trading drives financial market uncertainty. Our results suggest that the motivation behind institutions entering and exiting a stock relies on their superior information advantage, which gives institutions greater power to forecast future stock returns. Furthermore, the significant correlation between informed trading and future stock performance tends to weaken after introducing corporate transparency. Informed institutions prefer to hold stocks of opaque corporations, thereby worsening information asymmetry and inducing more uncertainty in the market.

Suggested Citation

  • Gu, Xin & Ying, Shan & Wang, Liangliang & Yu, Zhen & Sharma, Susan Sunila, 2021. "A new estimation of institutional informed trading and firm transparency: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000457
    DOI: 10.1016/j.pacfin.2021.101538
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