Technology Competition and Informed Trading: Evidence from Weekly Patent Announcements

57 Pages Posted: 10 Dec 2016 Last revised: 31 Jan 2019

See all articles by Zhenyu Gao

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Sahn-Wook Huh

State University of New York (SUNY) - Department of Finance

Date Written: January 22, 2019

Abstract

By constructing weekly measures of informed trading and technology competition, we provide evidence that news about a firm’s relative disadvantage in technology competition leads to informed selling in stock markets. Such a pattern is weaker among firms in the industries whose technology obsolescence rates are higher. We also find that a firm’s unfavorable status in competition predicts lower subsequent stock returns, and informed trading on such news is profitable. In particular, institutional investors actively assess the status of firms’ technology competition and capitalize on their informational advantage through trading activities, achieving higher returns.

Keywords: Information Asymmetry; Informed Trading; Conditional Probability of Informed Trading; Corporate Innovation; Patenting Activities; Product Similarity Scores; Technology Competition; Relative Disadvantage

JEL Classification: G14, G12, O31

Suggested Citation

Gao, Zhenyu and Hsu, Po-Hsuan and Huh, Sahn-Wook, Technology Competition and Informed Trading: Evidence from Weekly Patent Announcements (January 22, 2019). Available at SSRN: https://ssrn.com/abstract=2883233 or http://dx.doi.org/10.2139/ssrn.2883233

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong
(852)39431824 (Phone)

HOME PAGE: http://https://sites.google.com/site/gao515515/

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Sahn-Wook Huh (Contact Author)

State University of New York (SUNY) - Department of Finance ( email )

347 Jacobs Management Center
Buffalo, 14260-4000
United States
716-645-5435 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://www.acsu.buffalo.edu/~swhuh/

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