Work

Do Prices Reveal the Presence of Informed Trading?

Year: 2015

Type: article

Abstract: ABSTRACT Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists accumulate shares, measures of adverse selection and of stock illiquidity are lower, even though prices are positively impacted. Two channels help explain this phenomenon: (1) activists select times of higher liquidity when they trade, and (2) activists use limit orders. We conclude that, when informed traders can select when and how to trade, standard measures of adverse selection may fail to capture the presence of informed trading.

Source: The Journal of Finance

DOI: 10.1111/jofi.12260

Authors: PIERRE COLLIN‐DUFRESNE, VYACHESLAV FOS

Institutions: National Bureau of Economic Research, University of Illinois Urbana-Champaign, Copenhagen Business School, Columbia University, Tsinghua University, The University of Sydney, University of Cambridge, École Polytechnique Fédérale de Lausanne

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W3121539549

FWCI: 50.14

Cites: 57

Cited by: 343

Related to: 10