Do prices reveal the presence of informed trading?
AbstractUsing a comprehensive sample of trades by Schedule 13D filers, who possess valuable private information when they accumulate stocks of targeted companies, this paper studies whether several liquidity measures reveal the presence of informed trading. The evidence suggests that when Schedule 13D filers trade aggressively, both high-frequency and low-frequency measures of stock liquidity indicate a higher stock liquidity. Importantly, measures that have been used as direct proxies for adverse selection, such the Kyle (1985) lambda, the Easley et al. (1996) pin measure, and the Amihud (2002) illiquidity measure, suggest that the adverse selection is lower when informed trading takes place. The evidence is consistent with informed traders being more aggressive when measured stock liquidity is high.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18452.
Date of creation: Oct 2012
Date of revision:
Note: AP CF LE
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Find related papers by JEL classification:
- G0 - Financial Economics - - General
- G00 - Financial Economics - - General - - - General
- G1 - Financial Economics - - General Financial Markets
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G3 - Financial Economics - - Corporate Finance and Governance
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-20 (All new papers)
- NEP-CTA-2012-10-20 (Contract Theory & Applications)
- NEP-MST-2012-10-20 (Market Microstructure)
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