Technology Competition and Informed Trading: Evidence from Weekly Patent Announcements
57 Pages Posted: 10 Dec 2016 Last revised: 31 Jan 2019
Date Written: January 22, 2019
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
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