Price Revelation from Insider Trading: Evidence from Hacked Earnings News

88 Pages Posted: 16 Apr 2019 Last revised: 3 Nov 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: November 2, 2020

Abstract

From 2010--2015, a group of traders illegally accessed earnings information hours before their public release by hacking several major newswire services. We use their informed trading as a natural experiment to investigate how efficiently markets incorporate private information in trades. 15\% of a firm’s earnings surprise was incorporated into its stock price prior to its public release, when the hackers were trading. Their trading activity sharply increased order flow, causing liquidity providers to charge higher spreads, consistent with classical models of market microstructure. The increase in spreads was large enough to reduce the profitability of uniformed trades, suggesting that informed trading can have adverse effects 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 (November 2, 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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