What Drives Informed Trading Before Public Releases? Evidence from Natural Gas Inventory Announcements

Journal of Futures Markets, Forthcoming

43 Pages Posted: 21 Aug 2016 Last revised: 29 Mar 2018

See all articles by Chen Gu

Chen Gu

Shanghai Business School - Research Center of Finance

Alexander Kurov

West Virginia University - College of Business & Economics

Date Written: March 25, 2018

Abstract

This paper shows evidence of informed trading in the natural gas futures market before gas inventory announcements. We examine whether traders can predict the upcoming announcement by processing public information. The results show that the difference between the median forecast of analysts with high historical forecasting accuracy and the consensus forecast can be used to predict inventory surprises. This predictor explains some of the pre-announcement price drift, suggesting that informed trading before the announcement is likely to be driven by superior forecasting rather than by information leakage. A simple trading strategy conditioned on the predictor would have generated an annualized Sharpe ratio of 1.26.

Keywords: Natural gas futures, Inventory announcements, Pre-announcement effect, Informed trading, Inventory forecasting

JEL Classification: D82, D84, G12, G14, G17, Q40

Suggested Citation

Gu, Chen and Kurov, Alexander, What Drives Informed Trading Before Public Releases? Evidence from Natural Gas Inventory Announcements (March 25, 2018). Journal of Futures Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2826684 or http://dx.doi.org/10.2139/ssrn.2826684

Chen Gu

Shanghai Business School - Research Center of Finance ( email )

Shanghai
China

Alexander Kurov (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

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