Chasing Private Information

The Review of Financial Studies (Forthcoming)

79 Pages Posted: 24 Nov 2015 Last revised: 17 Dec 2018

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Emiliano Pagnotta

Singapore Management University

Multiple version iconThere are 2 versions of this paper

Date Written: November 9, 2018


Using over 5000 equity and option trades unequivocally based on nonpublic information about firm fundamentals, we find that commonly used asymmetric information proxies (AIPs) display abnormal values on days with informed trading. Volatility and trading volume are abnormally high, whereas illiquidity is low, both in equity and option markets. Daily returns reflect the sign of private signals but, on average, bid–ask spreads are 10% and 20% lower when informed investors are present in stock and option markets. Market makers’ learning under event uncertainty and the use of limit orders by informed investors help explain these findings. We characterize cross-sectional responses based on the duration of private information and find that informed traders select days with high uninformed volume to trade. Evidence from the U.S. Securities and Exchange Commission (SEC) Whistleblower Reward Program and the Financial Industry Regulatory Authority (FINRA) involvement address potential selection concerns.

Keywords: Private information, information signals, adverse selection proxies, insider trading, trading strategies, liquidity, asset prices, abnormal volume, stock markets, option markets, volatility, SEC

JEL Classification: G12, G14, G10

Suggested Citation

Kacperczyk, Marcin T. and Pagnotta, Emiliano, Chasing Private Information (November 9, 2018). The Review of Financial Studies (Forthcoming), Available at SSRN: or

Marcin T. Kacperczyk (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Emiliano Pagnotta

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore, 178899


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