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Chasing Private Information

74 Pages Posted: 24 Nov 2015 Last revised: 9 Jan 2017

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Emiliano Pagnotta

Imperial College Business School

Date Written: January 7, 2017


Do market-based signals reveal the trading of privately informed investors? We examine this question using a novel sample of over 5,000 equity and option trades based on material and nonpublic information documented in the insider trading litigation files of the U.S. Securities and Exchange Commission (SEC). Our results have three main implications: (1) Trades based on private information about the value of the underlying asset do have an impact on the behavior of information signals. (2) The relation between private and public signals is complex and, in several cases, including commonly used liquidity metrics, contrary to standard theories. Days when informed investors trade display abnormally high volatility and volume and low illiquidity in both stock and option markets, especially for small stocks. (3) Trade volume is more informative in option markets than in stock markets. The most consistent signals combine both option and stock volume, especially the volume of leveraged and short-term options. We find that the ability of the signals to detect private information is weaker when experienced traders or top executives trade. We exploit the implementation of the SEC's Whistleblower Reward Program to validate our results with regard to potential selection concerns. Overall, our results provide new guidance in the search for private information.

Keywords: Private information, information measures, insider trading, information spillover, trading strategies, liquidity, asset prices, volume,stock markets, option markets, volatility, SEC, financial crime

JEL Classification: G12, G14, G10

Suggested Citation

Kacperczyk, Marcin T. and Pagnotta, Emiliano, Chasing Private Information (January 7, 2017). 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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Emiliano Pagnotta

Imperial College Business School ( email )

Imperial College Business School, Tanaka Building
London, SW7 2AZ
Great Britain
+447478734028 (Phone)

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