Price Revelation from Insider Trading: Evidence from Hacked Earnings News
57 Pages Posted: 16 Apr 2019 Last revised: 28 Oct 2019
Date Written: October 27, 2019
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 uninformed, professional traders traded in the same direction, amplifying the impact of informed trading.
Keywords: cyber risks, earnings announcements, insider trading, market price efficiency
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation