Informed Trading Volume and Asset Prices: The Role for Intensive Traders

69 Pages Posted: 6 May 2016 Last revised: 12 Apr 2019

See all articles by Christian T. Lundblad

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School

Zhishu Yang

Tsinghua University - School of Economics & Management

Qi Zhang

Durham University

Date Written: April 10, 2019

Abstract

We examine the trading behavior of particularly intensive traders, those who contribute the most to daily trading volume, and provide new evidence that is consistent with the presence of informational advantages. Using a unique Chinese data set of the most active daily market participants for each stock, we demonstrate that intensive traders’ buying (selling) predicts large positive (negative) abnormal returns, both unconditionally and, in particular, around key, value-relevant announcements. An advantage of our data is that we can also directly identify several plausible channels through which such an informational advantage could arise. Specifically, the abnormal returns are largest (in absolute terms) following announcements in the presence of intensive pre-event traders who share the same geographic location as the firms in which they trade, and these effects are the most pronounced for stocks with the lowest analyst coverage or the smallest capitalizations. We also find that particularly active traders located near relevant counterparties in an M&A transaction, a new bank loan facility, or a key political change also exhibit informational advantages. Finally, we provide empirical evidence suggesting that the main component of the informational advantage we document reflects a lower information acquisition cost.

Keywords: Informed trading volume, aggressive investor, geographic location, asset pricing

JEL Classification: G14

Suggested Citation

Lundblad, Christian T. and Yang, Zhishu and Zhang, Qi, Informed Trading Volume and Asset Prices: The Role for Intensive Traders (April 10, 2019). Second Annual Volatility Institute at NYU Shanghai (VINS) 2016. Available at SSRN: https://ssrn.com/abstract=2776322 or http://dx.doi.org/10.2139/ssrn.2776322

Christian T. Lundblad (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-8441 (Phone)

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

Qi Zhang

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

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