Brand Innovation and Informed Trading
62 Pages Posted: 16 Oct 2019 Last revised: 4 Mar 2022
Date Written: March 1, 2022
Abstract
We first show that brand innovation measured by trademark registrations (TMRs) is a prominent corporate event involving material information and hence perceivable through changes in volatility, liquidity, and prices. Firms with more TMRs have higher sales growth and Tobin’s Q. With high-frequency measures of informed trading, we provide evidence that informed investors actively trade on TMR news: TMRs are positively associated with the price impacts and the posterior probability of informed buying. Our DiD analyses based on exogenous shocks induced by regulation changes support our interpretations. Frictions in the registration process decrease the extent of informed trading, and the effect of TMRs on informed trading is heterogeneous across firms.
Keywords: Trademark Registrations; Brand Innovation; Informed Trading; Price Impacts; Posterior Probability of Informed Buying and Selling; Directional Price Impacts
JEL Classification: E22; G12; G14; O34
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