Work

Trading in the Presence of Short-Lived Private Information: Evidence from Analyst Recommendation Changes

Year: 2018

Type: article

Abstract: We use a proprietary dataset to test the implications of several asymmetric information models on how short-lived private information affects trading strategies and liquidity provision. Our identification rests on information acquisition before analyst recommendations are publically announced. We provide the first empirical evidence supporting theoretical predictions that early-informed traders “sell the news” after “buying the rumor.” Further, we find distinct profit-taking patterns across different classes of institutions. Uninformed institutions, but not individuals, emerge as de-facto liquidity providers to better-informed institutions. Placebo tests confirm that these trading patterns are unique to situations in which some investors have a short-lived informational advantage.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109018000212

Authors: Ohad Kadan, Roni Michaely, Pamela C. Moulton

Institutions: University of Wisconsin–Madison, Washington University in St. Louis, Cornell University, University at Albany, State University of New York, Cornell Tech, The University of Adelaide, Singapore Management University, University of Memphis, Tsinghua University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3124159208

FWCI: 7.595

Cites: 35

Cited by: 65

Related to: 10