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Private information in trades, R2, and large stock price movements

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  • Van Ness, Bonnie
  • Van Ness, Robert
  • Yildiz, Serhat

Abstract

We investigate the relations between trading-conveyed private information and stock return distributions. Using high-frequency measures of private information, we find that private information in trades is associated with lower stock return synchronicity. We also find private information in trades is positively associated with stock price crashes and positive stock price jumps. Our results are robust to several specification checks, including the use of alternative private information proxies, various model specifications, and different time periods. Overall, we demonstrate that trading conveyed private information reduces stock return synchronicity and predicts the frequency of crashes and jumps. Our findings can be useful for market makers, regulators, and traders, who are interested in firm-specific return variation and extreme stock price movements at high frequencies.

Suggested Citation

  • Van Ness, Bonnie & Van Ness, Robert & Yildiz, Serhat, 2021. "Private information in trades, R2, and large stock price movements," Journal of Banking & Finance, Elsevier, vol. 131(C).
  • Handle: RePEc:eee:jbfina:v:131:y:2021:i:c:s0378426621001539
    DOI: 10.1016/j.jbankfin.2021.106194
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    More about this item

    Keywords

    Private information; Stock return synchronicity; Crashes and jumps; Price informativeness;
    All these keywords.

    JEL classification:

    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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