Trade Size Preference of Informed Traders in Indian Equity Markets

This study utilized high frequency transactions data to analyze the trade size preference of informed traders in Indian equity markets. It is observed that informed traders at an aggregate level adopt stealth trading strategy, wherein they prefer medium sized trades over large sized trades in order to camouflage their private information. However, the stealth trading behavior varies across stocks, wherein informed traders prefer more large sized trades on firms that are part of an index compared to non-index firms. Trading behavior also varies across other market conditions. It has been noted that informed traders prefer large sized trades during periods of high market thickness, negative returns, and low volatility. This study also provides a rationale for such varied behavior of informed traders.     

Informed and Uninformed Trading in an Electronic, Order-Driven Environment

The purpose of our study is to investigate the trading behavior of informed and uninformed investors in a screen‐based, order‐driven environment. As more and more exchanges conduct trading through electronic limit‐order books, it is increasingly important to analyze consequent trading behavior and its impact on the liquidity provision process. We examine one of the largest electronic, order‐driven markets in the world, the Stock Exchange of Hong Kong. Our findings show that the interaction of informed and uninformed traders plays a significant role in determining corporate liquidity.     

机构投资者、知情人交易和市场效率——来自中国资本市场的实证证据

2001年之后,我国机构投资者正经历着一个快速发展的时期。针对之前屡屡发生的违规行为,机构投资者在我国资本市场发展过程中究竟扮演了什么样的角色目前还存在很大的争议。根据Grossman与Stiglitz(1980)等研究提出的信息经济学理论,机构投资者的作用更直接的体现为通过知情人交易向市场传递信息。在以往研究的基础上,本文通过考察机构投资者交易对股价中公司特有信息含量的影响,从信息的角度对机构投资者在我国资本市场中所起到的作用进行了更进一步的检验。在控制了内生性、噪音等因素影响之后,实证结果显示机构投资者交易确实增加了股价中的公司特有信息含量,提高了市场的效率。本文加深了对我国资本市场中机构投资者的理解和认识,从更直接的角度验证了引入机构投资者对市场的作用,另一方面也在一定程度上说明监管者正确导向了机构投资者的行为。     

Information, Trading Demand, and Futures Price Volatility

We examine the relation between futures price volatility and trading demand by type of trader in the Standard & Poor's (S&P) 500-stock index futures market. We find that volatility covaries negatively with signed speculative demand shocks but is positively related to signed hedging demand shocks. No significant relation between volatility and demand shocks for small traders is found. Our results suggest that changes in positions of large hedgers destabilize the market, whereas changes in positions of large speculators stabilize volatility. Consistent with models with asymmetrically informed traders, we find that large speculators are likely to possess superior forecasting ability, large hedgers behave like positive feedback traders, and small traders are liquidity traders.     

Market Quote and Spread Component Cost Behavior Around Trading Halts for Stocks Interlisted on the Montreal and Toronto Stock Exchanges

We use intraday quotes and transactions on halted securities that interlisted on the Toronto Stock Exchange and Montreal Exchange to decompose the spreads and examine quote depths. Our results show that order‐processing costs differ for trading halts at the open compared to halts during the rest of the trading day. We find that the adverse‐selection cost component of the spread is higher around trading halts and highest at the trading halt. We also find that print‐media articles that appear within the four‐day window centered on the halt have no impact on the time‐series behavior of the spread cost.     

The Inter-Temporal Behavior of Informed and Uninformed Traders

The purpose of this study is to investigate the inter-temporal trading behavior of informed and uninformed investors. We estimate a variation of the market microstructure model developed in Easley, Keifer, O'Hara, and Paperman (1996) and document the day-of-the-week pattern in informed and uninformed trading, as well as the probability of an information event and the probability of bad news. Using bootstrapped distributions, we show that the probability of trading against informed investors follows a U-shape pattern from Monday to Friday. Cross-sectional regression results suggest that inter-temporal patterns between informed and uninformed traders can generate observed patterns in liquidity provision costs.     

Voluntary Disclosure with Informed Trading in the IPO Market

We examine voluntary disclosure and capital investment by an informed manager in an initial public offering (IPO) in the presence of informed and uninformed investors. We find that in equilibrium, disclosure is more forthcoming—and investment efficiency is lower—when a greater fraction of the investment community is already informed. Moreover, managers disclose more information when the likelihood of an information event is higher, more equity is issued, or the cost of information acquisition is lower. Investment efficiency and the expected level of underpricing are non‐monotonic in the likelihood that the manager is privately informed.     

基于面板数据的我国知情交易与股价信息含量研究

知情交易概率是指知情交易委托单占总交易委托单的比重,用于度量我国知情交易强度。R2代表公司回报率能被市场回报率解释的程度,R2越大,股价信息含量越低。在以往的研究基础上,利用面板数据来考察知情交易概率与股价信息含量的关系,发现知情交易概率越低,R2越高,股价信息含量越低。在控制了流动性与部分公司财务指标后,实证结果依然显示我国股价信息含量与知情交易概率存在正相关关系,说明我国知情交易者进行交易时,更有利于公司特质信息进入股票价格。     

Nasdaq Trading and Trading Costs: 1993–2002

Nasdaq spreads decline from 1993 to 2002, largely independently of tick‐size reductions. Trade size declines, consistent with greater retail investor activity. Using the method of Chordia, Roll, and Subrahmanyam (2001), we find that concurrent market returns strongly affect liquidity and trading activity. Liquidity exhibits distinct day‐of‐the‐week patterns. There is little evidence that macroeconomic announcements or changes in key interest rates affect Nasdaq stocks overall; but in the bear market, we find a relation between some of these variables and effective spreads, which we interpret as consistent with Nasdaq participants' paying greater attention to fundamentals after the market crash.     

Information‐Hedging Disclosures and Insider Trading

I model the effect of disclosure on the tradeoff between information risk, liquidity risk, and price risk for a well‐informed, risk‐averse insider. Revealing some information before trading decreases the variability of the insider's information advantage and thus reduces his information risk. Disclosure also lowers adverse selection costs for market makers, which reduces the insider's liquidity risk by increasing his trading flexibility. However, disclosure increases price risk for the insider because the price fully reflects the revealed information. The reduction in information and liquidity risks outweigh the rise in price risk when the insider is less risk averse because a less risk‐averse insider's information‐based motive for trading is stronger than his hedging motive. The opposite relation holds when the insider is more risk averse. Therefore, a less (more) risk‐averse insider experiences an increase (decrease) in welfare when he discloses some information before trading. Cost of capital and policy implications are identified.     

Reporting Frequency, Information Precision and Private Information Acquisition

Abstract:  This study examines whether the choice between quarterly and semiannual reporting affects the precision of investors' information and their private information acquisition activities. In the first part of this study, we show that a firm's reporting frequency has no effect on the average precision of investors' information. However, our analysis of announcement-period price variance and share turnover shows that an increase in reporting frequency does make interim and annual financial reports a more important component of investors' information set, relative to other sources of information. In particular, the results of this analysis suggest that investors of semiannual reporters hold more precise pre-announcement information than investors of quarterly reporters. In the second part of our study, we test one explanation for this finding. We argue that an increase in a firm's reporting frequency reduces investors' incentives to acquire private information between consecutive announcement dates and, consequently, should reduce information asymmetry among investors, increase share liquidity, and stimulate trading. Consistent with this reasoning, we find that quarterly reporters have lower average bid-ask spreads and higher abnormal share turnover than semiannual reporters.     

The Effect of Decimalization on Trade Size and Adverse Selection Costs

Abstract:   We examine adverse selection costs around NYSE decimalization. Further, we analyze the relation between adverse selection costs and trade size. We find a significant increase in the percentage adverse selection cost and a reduction in dollar adverse selection cost (percentage adverse selection multiplied by the spread) following complete decimalization on the NYSE. On estimating the adverse selection components by trade size classes, we find a decline in dollar adverse selection costs in trades of all sizes, with the strongest evidence coming from medium size trades, followed by small and large size trades. One implication of our findings is that there appears to be less stealth trading following complete decimalization and less institutional trading overall.     

Adverse-Selection Costs and the Probability of Information-Based Trading

Prior studies offer various empirical models to decompose the observed bid‐ask spread into the adverse‐selection and transitory (order‐processing and inventory‐holding) components. There is limited evidence, however, on whether the spread components estimated from these models indeed measure what they purport to measure. In this study, we show that the estimates of the adverse‐selection component given by these models are positively and significantly related to the probability of information‐based trading (PIN), after controlling for the endogeneity of the PIN and other stock attributes. These results provide direct empirical support for the spread component models examined in the present study.     

Asymmetric Volatility and Trading Activity in Index Futures Options

We examine the impact of option trading activity on implied volatility changes to returns in the index futures option market. Controlling for option moneyness, delta‐to‐option‐premium ratio, and liquidity, we find that net buying pressure, profit‐maximization behavior, and liquidity are interrelated and affect asymmetric responses of implied volatilities to returns. Implied volatilities of options with more liquidity, a higher exercise price, and a higher delta‐to‐option‐premium ratio have the most profound asymmetric response.     

Futures Trading Activity and Commodity Cash Price Volatility

Abstract:   This paper examines the lead‐lag relationship between futures trading activity (volume and open interest) and cash price volatility for major agricultural commodities. Granger causality tests and generalized forecast error variance decompositions show that an unexpected increase in futures trading volume unidirectionally causes an increase in cash price volatility for most commodities. Likewise, there is a weak causal feedback between open interest and cash price volatility. These findings are generally consistent with the destabilizing effect of futures trading on agricultural commodity markets.     

The Dynamic Relation Between Stock Returns, Trading Volume, and Volatility

We examine the dynamic relation between returns, volume, and volatility of stock indexes. The data come from nine national markets and cover the period from 1973 to 2000. The results show a positive correlation between trading volume and the absolute value of the stock price change. Granger causality tests demonstrate that for some countries, returns cause volume and volume causes returns. Our results indicate that trading volume contributes some information to the returns process. The results also show persistence in volatility even after we incorporate contemporaneous and lagged volume effects. The results are robust across the nine national markets.