Do Prices Reveal the Presence of Informed Trading?

45 Pages Posted: 16 Mar 2012 Last revised: 8 Sep 2015

See all articles by Pierre Collin-Dufresne

Pierre Collin-Dufresne

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; National Bureau of Economic Research (NBER)

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

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Date Written: January 27, 2015


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: (a) activists select times of higher liquidity when they trade, and (b) 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.

Keywords: informed trading, liquidity, transaction costs, selection bias, activist shareholders

JEL Classification: G14

Suggested Citation

Collin-Dufresne, Pierre and Fos, Vyacheslav, Do Prices Reveal the Presence of Informed Trading? (January 27, 2015). Journal of Finance, Volume 70, Issue 4, August 2015, Pages 1555-1582. Available at SSRN: or

Pierre Collin-Dufresne

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vyacheslav Fos (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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