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Uncertain information release and informed trading

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  • David Walsh

Abstract

The effect of uncertainty about the exact public release time of a private signal is studied. In showing that an equilibrium trading strategy for informed traders and an equilibrium pricing rule for the market maker exist, the trade-off between this uncertainty and informed trader competition can be studied for different types of information, and its impact on information release policies of firms. As expected, uncertainty with regard to the release date (on its own or with competition between informed traders) induces increased price informativeness and trading intensity by informed traders. Implications of this include an increase in price informativeness and a decrease in informed trader profits in the following circumstances: (i) for unpredictable information release dates rather than predictable; (ii) for good news rather than bad news; and (iii) if a firm chooses stochastic rather than constant release dates for predictable information releases.

Suggested Citation

  • David Walsh, 1999. "Uncertain information release and informed trading," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 21-30.
    • Handle: RePEc:taf:apfiec:v:9:y:1999:i:1:p:21-30
    DOI: 10.1080/096031099332500
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    References listed on IDEAS

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    1. Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
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    7. Subrahmanyam, Avanidhar, 1991. "Risk Aversion, Market Liquidity, and Price Efficiency," The Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 416-441.
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    Cited by:

    1. Chang, Chiao-Yi, 2013. "The market response of insider transferring trades and firm characteristics in Taiwan," Emerging Markets Review, Elsevier, vol. 16(C), pages 131-144.
    2. Esther Brio & Javier Perote, 2007. "What Enhances Insider Trading Profitability?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(2), pages 173-188, June.

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