Measuring Private Information Trading in Emerging Markets

NYU Department of Finance Working Paper; EFA 2002 Berlin Meetings Presented Paper

47 Pages Posted: 23 Feb 2002

See all articles by Olesya V. Grishchenko

Olesya V. Grishchenko

Board of Governors of the Federal Reserve System

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Jianping Mei

New York University (NYU) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 2002

Abstract

We examine the dynamic relation between return and volume of individual stocks in Russia and other emerging markets. In a simple model in which investors trade to share risk or speculate on private information, Llorente, Michaely, Saar, and Wang (2001) show that returns generated by risk-sharing trades tend to reverse themselves while returns generated by private information trades tend to continue themselves. We apply this theoretical framework to analyze the relation between daily volume and first-order return autocorrelation for individual stocks traded in Russia and other emerging markets. We find strong evidence of return continuation following high volume days, suggesting the presence of private information trading in emerging markets. Using corporate announcement data from Russia, we discover that the private information trading is especially strong around major corporate event dates. In addition, we find stocks in countries that enforce insider-trading law and provide better investor protection exhibit less private information trading. These results suggest a possible measure of "information asymmetry" for ranking emerging market stocks.

JEL Classification: G14, G15, G20

Suggested Citation

Grishchenko, Olesya V. and Litov, Lubomir P. and Mei, Jianping, Measuring Private Information Trading in Emerging Markets (April 2002). NYU Department of Finance Working Paper; EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: https://ssrn.com/abstract=301098 or http://dx.doi.org/10.2139/ssrn.301098

Olesya V. Grishchenko

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2981 (Phone)

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Jianping Mei (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0354 (Phone)
212-995-4221 (Fax)

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