Chasing Private Information

64 Pages Posted: 16 Apr 2018

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Emiliano Pagnotta

Imperial College Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 2018

Abstract

Using over 5000 equity and option trades unequivocally based on nonpublic information about firm fundamentals, we find that widely used adverse selection signals display abnormal values on days with informed trading. Volatility and volume values are abnormally high, whereas illiquidity values are low, both in equity and options markets. Signals are more sensitive to informed trading in options markets and before unscheduled corporate announcements. We characterize cross-sectional responses based on the sign, type, and duration of private information. Evidence from the U.S. Securities and Exchange Commission (SEC) Whistleblower Reward Program addresses potential selection concerns.

Suggested Citation

Kacperczyk, Marcin T. and Pagnotta, Emiliano, Chasing Private Information (April 2018). CEPR Discussion Paper No. DP12871. Available at SSRN: https://ssrn.com/abstract=3163525

Marcin T. Kacperczyk (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Emiliano Pagnotta

Imperial College Business School ( email )

Imperial College Business School, Tanaka Building
London, SW7 2AZ
Great Britain
+447478734028 (Phone)

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