Abstract

http://ssrn.com/abstract=1785417
 
 

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The Price of Street Friends: Social Networks, Informed Trading, and Shareholder Costs


Jie Cai


Drexel University

Ralph A. Walkling


Drexel University - Lebow College of Business

Ke Yang


Lehigh University

November 30, 2012


Abstract:     
Prior research reports increased stock transaction costs when informed trading is present. Recent studies suggest the transfer of privileged information via social ties. Combing these two literature streams, we document a significant, positive relation between a company's trading costs and the Wall Street social ties of its executives and directors. Social ties based on education, leisure activities, local ties, and ties to individuals responsible for trading have stronger effects. Exogenous severance of ties reduces trading costs and trading activities by connected parties. Firms with more ties to Wall Street exhibit reduced market reaction to official announcements of earnings and acquisitions.

Number of Pages in PDF File: 56

Keywords: Social Connections, Informed Trading, Inside Information, Trading Costs

JEL Classification: G14, D82, D83

working papers series


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Date posted: March 15, 2011 ; Last revised: December 14, 2012

Suggested Citation

Cai, Jie and Walkling, Ralph A. and Yang, Ke, The Price of Street Friends: Social Networks, Informed Trading, and Shareholder Costs (November 30, 2012). Available at SSRN: http://ssrn.com/abstract=1785417 or http://dx.doi.org/10.2139/ssrn.1785417

Contact Information

Jie Cai
Drexel University ( email )
LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1755 (Phone)
215-895-2955 (Fax)
HOME PAGE: http://faculty.lebow.drexel.edu/CaiJ/
Ralph August Walkling (Contact Author)
Drexel University - Lebow College of Business ( email )
LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)
Ke Yang
Lehigh University ( email )
621 Taylor Street
Bethlehem, PA 18015
United States
6107583684 (Phone)
6107586429 (Fax)
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