Informed Trading in Corporate Bonds Prior to Earnings Announcements

This paper examines the information content of corporate bond trading prior to earnings announcements using data from both NAIC and TRACE. We find that the direction of pre‐announcement bond trading is closely related to earnings surprises. This link is most evident prior to negative news and in high‐yield bonds. Further, abnormal bond trading during the pre‐announcement period can help predict both earnings surprises and post‐announcement bond returns. Such predictive ability of bond trading largely originates from institutional‐sized trades and is concentrated in the issuer's most actively traded bond. Finally, even after accounting for transactions costs, informed bond trading can generate significant net profits, especially prior to the release of bad news.     

Individuals’ Trading Prior to Earnings Announcements

This paper investigates the relationship between individuals’ net trading and stock price movements before and after annual earnings announcements for the Taiwan Stock Exchange. We conduct an event study on the effects of pre‐event individual trade imbalances on pre‐ and post‐announcement abnormal returns. With a unique and comprehensive dataset, we accurately classify executed orders by aggressiveness of order price. The evidence indicates that while individuals, as a group, are not informed about impending earnings announcements, individuals who place aggressive orders are informed as their net trading coincides with contemporaneous and future stock returns. Aggressive individuals lose their edge during the financial crisis. More importantly, the advantage (disadvantage) for individuals who adopt aggressive (passive) orders weakens when foreign institutions own concentrated equity in firms. We also find that net individual trading contains information about abnormal returns that either past returns or volume does not subsume. Controlling for past returns, trading volume and volatility, or using an alternative measure of net individual trading does not change our conclusions.     

Informed Trading Around Earnings Announcements: Another Look

This study is an empirical test of the Easley, O'Hara, and Srinivas (1998) multimarket sequential trade model of stock and option markets. We employ two approaches to determine the information content of signed stock and option trades executed around quarterly earnings announcements. The first approach expands the vector autoregression (VAR) technique of Hasbrouck (1991a) to include signed option trade volumes and inter‐trade durations. Estimates from the VAR models provide insight into whether both equity and option trades are viewed as informative by the equity specialist. The second approach focuses on the information content of the earnings releases to determine whether signed equity and option trades executed prior to the announcements are informed. Results indicate that although informed traders prefer to transact in both markets around earnings announcements, option market transactions contain no incremental information.     

Insider Trading around Dividend Announcements: Theory and Evidence

The informational role of strategic insider trading around corporate dividend announcements is studied based on the efficient equilibrium in a signalling model with endogenous insider trading. Insider trading immediately prior to the announcement of dividend initiations has significant explanatory power. For firms with insider selling prior to the dividend initiation announcement, the excess returns are negative and significantly lower than for the remaining firms (with no insider trading or just insider buying) as implied by our model. Another implication is that dividend increases may elicit a positive or negative stock price response depending on the firm's investment opportunities.     

Insider Trading after Repurchase Tender Offer Announcements: Timing versus Informed Trading

Abnormally high net insider selling is commonly observed after repurchase tender offer (RTO) announcements although, on average, firms experience positive abnormal returns in the years after the repurchases. We explore two potential explanations: liquidity trade timing and informed trading. Consistent with the notion that fixed price RTOs are more likely than Dutch-auction RTOs to signal undervaluation, the results suggest that insider selling after fixed price RTO announcements are driven largely by insiders who time their trades with the repurchase announcements. In contrast, selling after Dutch-auction RTOs seems to be driven primarily by informed traders who exploit mispricing associated with the repurchase announcements.     

Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements

This article examines the price formation process during dividend announcement day, using daily closing prices and transactions data. We find that the unconditional positive excess returns, first documented by Kalay and Loewenstein (1985) , are higher for small-firm and low-priced stocks. Price volatility and trading volume also increase during this period. Examination of trade prices relative to the bid-ask spread and volume of trades at bid and asked prices shows that the excess returns cannot be attributed to measurement errors or to spillover effects of tax-related ex-day trading. Rather, the price behavior is related to the absorption of dividend information.     

Informed Trading around Merger Announcements: An Empirical Test Using Transaction Volume and Open Interest in Options Market

This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery.     

Asymmetric Trading Costs Prior to Earnings Announcements: Implications for Price Discovery and Returns

We show that the cost of trading on negative news, relative to positive news, increases before earnings announcements. Our evidence suggests that this asymmetry is due to financial intermediaries reducing their exposure to announcement risks by providing liquidity asymmetrically. This asymmetry creates a predictable upward bias in prices that increases preannouncement, and subsequently reverses, confounding short‐window announcement returns as measures of earnings news and risk premia. These findings provide an alternative explanation for asymmetric return reactions to firms' earnings news, and help explain puzzling prior evidence that announcement risk premia precede the actual announcements. Our study informs methods for research centering on earnings announcements and offers a possible explanation for patterns in returns around anticipated periods of heightened inventory risks, including alternative firm‐level, industry‐level, and macroeconomic information events.     

应对气候变化的政策选择：碳税还是碳排放交易？

在应对气候变化的政策选择中,碳排放税虽然具有保持碳价格稳定、易于管理与推行等优点,但是,它无法确保达到既定的减排目标。如果用环境效益标准来评价,则碳排放权交易优于碳排放税。而在碳排放权交易机制下碳排放权的初始分配应采取增价拍卖方式。     

Informed Trading Intensity

We train a machine learning method on a class of informed trades to develop a new measure of informed trading, informed trading intensity (ITI). ITI increases before earnings, mergers and acquisitions, and news announcements, and has implications for return reversal and asset pricing. ITI is effective because it captures nonlinearities and interactions between informed trading, volume, and volatility. This data-driven approach can shed light on the economics of informed trading, including impatient informed trading, commonality in informed trading, and models of informed trading. Overall, learning from informed trading data can generate an effective informed trading measure.     

Short-Selling Prior to Earnings Announcements

This paper examines short‐sales transactions in the five days prior to earnings announcements of 913 Nasdaq‐listed firms. The tests provide evidence of informed trading in pre‐announcement short‐selling because they reveal that abnormal short‐selling is significantly linked to post‐announcement stock returns. Also, the tests indicate that short‐sellers typically are more active in stocks with low book‐to‐market valuations or low SUEs. The levels of pre‐announcement short‐selling, however, mostly appear to reflect firm‐specific information rather than these fundamental financial characteristics. We believe that these results should encourage financial market regulators to consider providing more extensive and timely disclosures of short‐selling to investors.     

Risk Shift Following Dividend Change Announcement: The Role of Trading Volume

This study investigates the role of the trading volume in explaining the shift of firm's total and systematic risk when a dividend change is announced. We compared the differential interpretation hypothesis and pre-announcement disagreement hypothesis with more than 20,000 samples collected for 30 years. We found that the total risk generally increases regardless of the level of abnormal trading volume, which supports the differential interpretation hypothesis. We also found a positive relationship between announcement-period abnormal trading volume and post-announcement changes in beta, which is only consistent with the differential interpretation hypothesis. However, the decrease in beta for the majority of sample firms is only consistent with the pre-announcement disagreement hypothesis.     

知情交易概率测算在内幕交易监管中的应用

内幕交易定义侧重信息分布状态,知情交易定义侧重信息认知状态,在立法和监管层面,内幕交易包含知情交易的内涵。信息优势是内幕交易监管困境的根源所在,知情交易概率模型从是否拥有信息的两种不同交易行为模式出发．有助于判断潜在的内幕交易行为,根据选取时间段变量、事件变量和财务指标变量的不同,为内幕交易监管选取重点目标提供参考。在监管实务操作中。强化信息核心、改革收盘机制、主张模糊界定等是必要的手段。     

Prior Information and the Market Reaction to Dividend Changes

We investigate two hypotheses regarding the information content of dividend change announcements. The first is that the importance of information signaled by a dividend change depends on the reliability of earnings forecasts existing before the dividend announcement. The second hypothesis is that the stock price reaction to dividend change announcements is related to earnings forecast error as of the time of the dividend announcement. Our results reveal that dividend increases convey more information for firms in which financial analysts least accurately predict earnings. The results also indicate that dividend increase and decrease announcements provide market participants with information which, on average, allows them to differentiate between firms on the basis of future earnings realizations. These differential information effects are shown to be robust to price, size, dividend yield, and overinvestment effects.     

Informed Trading and Intertemporal Substitution

I examine the possibility of information-based trading in a multiperiod consumption setting. I develop a necessary and sufficient condition for trade to occur. Intertemporal substitution introduces a desire to correlate current consumption with future aggregate shocks. When agents have heterogeneous time-inseparable preferences, information differentially affects relative preferences for current and future consumption, making information-based trading mutually acceptable. The no-trade result continues to hold if there is no aggregate shock, or if agents have either homogeneous or time-separable preferences.     

Options Trading and the CAPM

This article studies equilibrium asset pricing when agents facenonnegative wealth constraints. In the presence of these constraintsit is shown that options on the market portfolio are nonredundantsecurities and the economy's pricing kernel is a function ofboth the market portfolio and the nonredundant options. Thisimplies that the options should be useful for explaining riskyasset returns. To test the theory, a model is derived in whichthe expected excess return on any risky asset is linearly related(via a collection of betas) to the expected excess return onthe market portfolio and to the expected excess returns on thenonredundant options. The empirical results indicate that thereturns on traded index options are relevant for explainingthe returns on risky asset portfolios.     

Estimating the Probability of Informed Trading

Using a new empirical model, I estimate the probability of trades being generated by privately informed traders. Inference is drawn on a trade‐by‐trade basis using data samples from the New York Stock Exchange (NYSE). The modeling setup facilitates in‐depth analysis of the estimated probability of informed trading at the intraday level and for stocks with different levels of trading activity. The most important empirical results are: (a) the intradaily pattern of the inferred probability of informed trading is highly correlated with the intradaily pattern of observed quoted spreads, (b) differences in the magnitude of quoted spreads across volume categories are not exclusively related to differences in the level of informed trading, and (c) private information is incorporated faster in the quotes for high‐volume stocks than in the quotes for low‐volume stocks.     

Informed Trading When Information Becomes Stale

This paper characterizes informed trade when speculators can acquire distinct signals of varying quality about an asset's value at different dates. The most reasonable characterization of private information about stocks is that while information is long‐lived, new information will arrive over time, information that may be acquired by others. Hence, while a speculator may know more than others at a moment, in the future, his information will become stale, but not valueless. In an environment that allows for arbitrary correlations among signals, we characterize equilibrium outcomes including trading, prices, and profits. We provide explicit numerical characterizations for different informational environments.     

Merger Announcements and Trading

We test whether an increase either in informed trades or in large liquidity trades leads to greater correlation of trading volume across markets. We confirm that both trading volume and positive returns of target companies are abnormally high before merger announcements. We find a statistically significant increase in the correlation between New York Stock Exchange and Nasdaq/regional trading volume before merger announcements. Furthermore, after merger announcements, we find evidence of both large liquidity trading and a statistically significant increase in the correlation of trading volume across markets.