What drives informed trading before public releases? Evidence from natural gas inventory announcements |
| |
| Authors: | Chen Gu Alexander Kurov |
| |
| Affiliation: | 1. Shanghai Business School, Research Center of Finance, Shanghai, China;2. Department of Finance, College of Business and Economics, West Virginia University, Morgantown, West Virginia |
| |
| Abstract: | This paper shows evidence of informed trading in the natural gas futures market before gas inventory announcements. We examine whether traders can predict the upcoming announcement by processing public information. The results show that the difference between the median forecast of analysts with high historical forecasting accuracy and the consensus forecast can be used to predict inventory surprises. This predictor explains some of the pre‐announcement price drift, suggesting that informed trading before the announcement is likely to be driven by superior forecasting rather than by information leakage. A simple trading strategy conditioned on the predictor would have generated an annualized Sharpe ratio of 1.26. |
| |
| Keywords: | informed trading inventory announcements inventory forecasting natural gas futures pre‐announcement effect |
|
|
