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; Centre for Economic Policy Research (CEPR)

Emiliano Pagnotta

Singapore Management University

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Emiliano Pagnotta

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore, 178899
Singapore

HOME PAGE: http://www.emilianopagnotta.com

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