The information content of trading halts

We investigate the impact of trading halts of NYSE-listed stocks on informationally related securities that continue to trade during the period of the halt. Informational relationships are established for companies in the same four-digit SIC industry based on the correlation of returns, volume, volatility, and the adverse selection components of spreads. We find a significant liquidity impact on informationally related securities with spreads and price impact of trades having substantial increases. However, we also find that quoted depths, the number of trades, and trade volume significantly increase. Our results are consistent with the trading halt model of Spiegel and Subrahmanyam [2000. Asymmetric information and news disclosure rules. Journal of Financial Intermediation 9, 363–403] and with the informed trading model of Tookes [2008. Information, trading, and product market interactions: cross-sectional implications of informed trading. Journal of Finance 63, 379–413]. In addition, our results indicate that there is a common liquidity response of informationally related securities to firm-specific trading halts.     

Does insider trading regulation deter private information trading? International evidence

Using a sample of 2189 firms from 21 countries we find that, on average, stricter insider trading regulations reduce private information trading. However, for firms with high agency costs, insider trading restrictions are less effective in deterring private information trading. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources thereby reducing transparency and increasing the returns to private information trading. Consistent with this, we find that firms with higher agency costs located in countries with stricter insider trading laws have more opaque earnings and are valued lower.     

Analyst talent,information, and insider trading

We examine 1984–2018 data and show that the talent or ability of sell-side financial analysts affects a covered firm's information environment—more so than the simple number of analysts covering a firm. We find that while analysts in general produce market and industry-level information, high-ability analysts contribute more firm-specific information. Firms covered by high-ability analysts experience significantly less insider trading prior to positive earnings news. Results only reside in opportunistic (not routine) trades. When an analyst initiates (terminates) coverage we find decreased (increased) subsequent insider trading. Both changes are primarily driven by analyst talent. Analyst ability also negatively relates to insider trading profitability.     

Volume autocorrelation,information, and investor trading

This study investigates whether the widely documented daily correlated trading volume of stocks is driven by individual investor trading, institutional trading, or both. We find that at least 95% of NYSE and AMEX stocks exhibit statistically significant, positive serial correlation. Volume autocorrelation decreases with the level of institutional ownership of a stock. We also show that the rate of arrivals of new information to the market contributes to the clustering of trades. When there is high information flow to the market, institutional trading generates a more pronounced effect on volume autocorrelation than individual investor trading. Our results are broadly consistent with the predictions of trading volume patterns suggested by most theoretical models of stock trading and by empirical research on investor trading.     

Herding and the information content of trades in the Australian dollar market

This study shows that the information content of FX transactions depends on the identity of market participants. Using spot FX transactions of a major Australian bank, we find that central banks have the greatest price impact, followed by non-bank financial institutions (NBFIs) such as hedge funds and mutual funds. Trades by non-financial corporations have the least impact on dealer pricing. In the interbank market, dealers with greater private information tend to choose direct trading which has lower post-trade transparency. Indirect trading via brokers is partially revealed to the market and has little price impact. The price impact largely comes from institutions in the top quartile of the trading volume. Furthermore, NBFIs have the greatest propensity for herding, followed by interbank dealers. Non-financial corporations do not herd in their trades. Except for central banks, the differential impact of market participants can largely be explained by their propensity for herding.     

Institutional stock trading on loan market information

One of the most important developments in the corporate loan market over the past decade has been the growing participation of institutional investors. As lenders, institutional investors routinely receive private information about borrowers. However, most of these investors also trade in public securities. This leads to a controversial question: Do institutional investors use private information acquired in the loan market to trade in public securities? This paper examines the stock trading of institutional investors whose portfolios also hold loans. Using the Securities and Exchange Commission filings of loan amendments, we identify institutional investors with access to private information disclosed during loan amendments. We then look at abnormal returns on subsequent stock trades. We find that institutional participants in loan renegotiations subsequently trade in the stock of the same company and outperform trades by other managers and trades in other stocks by approximately 5.4% in annualized terms.     

Block trading and information revelation around quarterly earnings announcements

I investigate the empirical importance of information revelationin the pricing of block trades. In particular, I examine whetherblock prices are correlated with the unexpected part of firms'quarterly earnings. For my sample of block trades, informationrevelation does indeed appear to be a significant factor shortlybefore earnings announcements.     

Private information, trading volume, and stock-return variances

New evidence is provided on the determinants of stock-returnvariances. First, when the Tokyo Stock Exchange is open on Saturday,the weekend variance increases; weekly variance is unaffected,however, despite an increase in weekly volume. Second, the listingof U.S. stocks in Tokyo substantially increases the number oftrading hours, but Tokyo volume is negligible for these U.S.stocks and their 24-hour variance is unaffected. The overallresults are consistent with the predictions of private-information-basedrational trading models, but inconsistent with both the irrationaltrading noise and public-information hypotheses.     

The impact of competition and information on intraday trading

In a dynamic model of financial market trading multiple heterogeneously informed traders choose when to place orders. Better informed traders trade immediately, worse informed delay – even though they expect the market to move against them. This behavior generates intraday patterns with decreasing spreads, decreasing probability of informed trading (PIN), and increasing volume. We predict that policies that foster market entry improve the welfare of uninformed traders and lead to increased market participation by incumbent traders. Technological advances that lead to better signal processing also encourage market participation and increase volume but at the expense of uninformed traders’ welfare.     

Strategic trading, asymmetric information and heterogeneous prior beliefs

We develop a multi-period trading model in which traders face both asymmetric information and heterogeneous prior beliefs. Heterogeneity arises because traders agree to disagree on the precision of an informed trader's private signal. In equilibrium, the informed trader smooths out her trading on asymmetric information gradually over time, but concentrates her entire trading on heterogeneous beliefs toward the last few periods. As a result, the model's volume dynamics are consistent with the U-shaped intraday pattern at the close. Furthermore, the model predicts a positive autocorrelation in trading volume, and a positive correlation between trading volume and contemporaneous price volatility.     

Audit process,private information,and insider trading

Review of Accounting Studies - While the shareholder benefits of audits are well documented, evidence on whether audits can facilitate opportunistic behavior by corporate insiders is scarce. In...     

Institutional trading,information production,and corporate spin-offs

We use a large sample of transaction-level institutional trading data to analyze, for the first time in the literature, the role of institutional investors as producers of information around corporate spin-offs. Our results may be summarized as follows. First, there is a significant imbalance in post-spin-off institutional trading between the equity of new parent firms versus subsidiaries, suggesting that spin-offs increase institutional investors' welfare by relaxing a trading constraint. This imbalance in institutional trading is driven by differences in information asymmetry across the two spun-off firm divisions. Second, institutional trading around spin-offs has significant predictive power for the announcement effect of a spin-off and for post-spin-off long-run stock returns. Third, institutional investors are able to realize significant abnormal profits by trading in the subsidiary firm equity in the first quarter post-spin-off. Overall, we show that spin-offs enhance information production by institutional investors, who profit from this enhanced information production.     

Informed trading,information uncertainty,and price momentum

In this paper we investigate the effects of informed trading (PIN) and information uncertainty in determining price momentum. We find that trading strategies based on buying high-uncertainty good-news stocks and shorting high-uncertainty bad-news stocks work well when limited to high-PIN stocks, while stocks with low-PIN do not exhibit price continuations, even when the uncertainty level of those stocks is high. In contrast, momentum returns are always significant for high-PIN stocks, irrespective of information uncertainty. Overall, we show that the informed trading effect is both independent of and stronger than that of information uncertainty in determining price momentum.     

Institutional Herding

Institutional investors' demand for a security this quarteris positively correlated with their demand for the securitylast quarter. We attribute this to institutional investors followingeach other into and out of the same securities ("herding") andinstitutional investors following their own lag trades. Althoughinstitutional investors are "momentum" traders, little of theirherding results from momentum trading. Moreover, institutionaldemand is more strongly related to lag institutional demandthan lag returns. Results are most consistent with the hypothesisthat institutions herd as a result of inferring informationfrom each other's trades.     

Insider trading as a signal of private information

There is substantial evidence that insider trading is presentaround corporate announcements and that this insider tradingis motivated by private information. Using real estate investmenttrusts that choose to reappraise themselves as our sample, weestablish that the appraisals contain information, but findno market response to the public announcement of this informationin these appraisals. We consider two possible explanations forthis inconsistency: the first that the appraisal informationis not highlighted in earnings reports and hence remains unobserved;and the second that insiders trade on the appraisal informationin the time that elapses between the appraisal and its publicannouncement We find strong support for the second hypothesis,with insiders buying (selling) after they receive favorable(unfavorable) appraisal news, especially for negative appraisals.We also find that positive (negative) appraisals and net insiderbuying (selling) elicit significant positive (negative) abnormalreturns during the appraisal period     

Algorithmic trading and block ownership initiation: An information perspective

This paper examines the impact of algorithmic trading (AT) on investors' incentives to initiate block ownership in U.S. public companies. We find that a one standard deviation change in AT activity reduces the block ownership initiation likelihood by 3.5%. Using the SEC's randomised tick size pilot experiment in 2016 as a negative shock to AT, we show that the effect of AT on block ownership initiation is causal. Further evidence supports the information-hindering explanation that AT discourages sophisticated investors from acquiring information, which results in a decrease in block ownership initiation. We find that the effect of AT is more pronounced among information-sensitive investors and that institutional investors reduce their information-gathering activities in AT-targeted stocks. Additional tests exploring information-based trading behaviour in the presence of AT provide strong evidence to support the explanation of information-hindering, and our results hold across a battery of robustness tests.     

Institutional trading,information production,and forced CEO turnovers

We analyze transaction-level data on institutional trading and examine information flows around CEO turnovers. We find that institutional trading prior to a CEO turnover is positively related to the nature of a CEO turnover (forced versus voluntary). We further find that institutions produce information partly by analyzing insider trading prior to a CEO turnover, though they are able to produce additional information independently as well. Finally, we find that trading by institutions after a forced CEO turnover with an insider as successor CEO is positively related to subsequent long-run stock returns, and realizes significant abnormal trading profits. Overall, our results are consistent with the notion that information production by institutions, and their trading making use of this information, improves the information environment around CEO turnovers.     

Earnings announcements,private information,and strategic informed trading

In this paper, we estimate and test a multi-period model of strategic informed trading developed by Foster and Viswanathan [Foster, F.-D., Viswanathan, S., 1996. Strategic trading when agents forecast the forecasts of others, J. Finance 51, 1437–1478]. We employ the GMM using intertemporal patterns of price, trading volume and market depth, leading up to the earnings announcements made by NYSE firms. We find that multiple informed traders with heterogeneous private signals trade prior to the announcements. In addition, by comparing the results from daily and intra-day estimations, we find that the number of informed traders increases while the intensity of liquidity trading decreases, and that the adverse selection problem becomes more pronounced as the announcements approach.     

Consolidation, fragmentation, and the disclosure of trading information

It is commonly believed that fragmented security markets havea natural tendency to consolidate. This article examines thisbelief, focusing on the effect of disclosing trading informationto market participants. We show that large traders who placemultiple trades can benefit from the absence of trade disclosurein a fragmented market, as can dealers who face less price competitionthan in a unified market. Consequently, a fragmented marketneed not coalesce into a single market unless trade disclosureis mandatory. We also compare and contrast fragmented and consolidatedmarkets. Fragmentation results in higher price volatility andviolations of price efficiency.     

Management earnings forecasts,insider trading,and information asymmetry

We investigate whether senior officers use accrual-based earnings management to meet voluntary earnings disclosure (i.e., management earnings forecasts) before selling or buying their own shares when they have private information. This study is the first to use the differences in timing of trades by senior officers and other insiders (e.g., directors or large shareholders) to infer information asymmetry. We hypothesize that the timing of senior officers' trades with no other insiders' trades at the same time indicates opportunistic trades and asymmetric information between senior officers and other insiders. Our results show that senior officers' exclusive sales are negatively associated with future returns, indicating that they tend to use insider information. Moreover, senior officers are more likely to meet their earnings forecasts when they plan to sell stocks.