Price Revelation from Insider Trading: Evidence from Hacked Earnings News

90 Pages Posted: 16 Apr 2019 Last revised: 29 May 2020

See all articles by Pat Akey

Pat Akey

University of Toronto - Rotman School of Management

Vincent Gregoire

HEC Montreal - Department of Finance

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Date Written: May 28, 2020

Abstract

From 2010--2015, a group of convicted traders accessed earnings information hours before their public release by hacking several major newswire services. We use their "insider" trading as a natural experiment to investigate how efficiently markets incorporate private information in prices. 15% of a firm's earnings surprise was incorporated into its stock price prior to its public release when the hackers had access to non-public information. Volume and spread-based measures of informed trading detect this activity, but order flow-based measures do not. We find evidence that the presence of these illegally informed traders caused market makers to increase spreads, which increased the cost of uninformed investors' trades by more than the market makers lost from trading against the informed traders, suggesting that informed trading can have negative externalities on financial markets.

Keywords: cyber risks, earnings announcements, insider trading, market price efficiency

JEL Classification: G10, G12, G14

Suggested Citation

Akey, Pat and Gregoire, Vincent and Martineau, Charles, Price Revelation from Insider Trading: Evidence from Hacked Earnings News (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3365024 or http://dx.doi.org/10.2139/ssrn.3365024

Pat Akey (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Vincent Gregoire

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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