Do prices reveal the presence of informed trading? / Pierre Collin-Dufresne, Vyacheslav Fos.

Format:

Book

Author/Creator:

Collin-Dufresne, Pierre.

Contributor:

National Bureau of Economic Research.

Fos, Vyacheslav.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18452.

NBER working paper series no. w18452

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

Using a comprehensive sample of trades by Schedule 13D filers, who possess valuable private information when they accumulate stocks of targeted companies, this paper studies whether several liquidity measures reveal the presence of informed trading. The evidence suggests that when Schedule 13D filers trade aggressively, both high-frequency and low-frequency measures of stock liquidity indicate a higher stock liquidity. Importantly, measures that have been used as direct proxies for adverse selection, such the Kyle (1985) lambda, the Easley et al. (1996) pin measure, and the Amihud (2002) illiquidity measure, suggest that the adverse selection is lower when informed trading takes place. The evidence is consistent with informed traders being more aggressive when measured stock liquidity is high.

Notes:

Print version record

October 2012.