Trading Against the Random Expiration of Private Information: A Natural Experiment
56 Pages Posted: 1 Jan 2015 Last revised: 21 Mar 2019
Date Written: July 22, 2018
For years, the SEC accidentally distributed securities disclosures to some investors before the public. This setting is unique because the delay until public disclosure was exogenous and the private information window was well-defined, which we exploit to study informed trading with a random stopping time. Trading intensity and the pace at which prices incorporate information decrease with the expected delay until public release, but the relation between trading intensity and time elapsed varies with traders' learning process. Noise trading and relative information advantage play similar roles as in standard microstructure theories assuming a fixed time window.
Keywords: Private information; information dissemination; informed trading
JEL Classification: G14, G28
Suggested Citation: Suggested Citation