Download This PaperTrading on Long-Term Information
57 Pages Posted: 13 Jul 2019 Last revised: 13 Oct 2020
Date Written: October 1, 2020
Abstract
Predatory trading can discourage investors from gathering information and trading on it. However, using 11 years of equity trading data, we do not find evidence that informed investors are being discouraged. They have roughly constant volumes and profits through the sample. They are sophisticated, trading patiently over weeks and timing their trades to achieve negative price impacts, leaving price efficiency unchanged. We identify shorter-term traders and, in contrast to theoretical assumptions, find that they supply liquidity by trading in the opposite direction of the informed. Inefficient prices may come from informed investors' sophisticated trading and not from predatory short-term trading.
Keywords: Strategic trading, informed trading, price efficiency
JEL Classification: G20, G14, L10
Suggested Citation: Suggested Citation
Corey Garriott (Contact Author)
Government of the United States of America - Office of Financial Research ( email )
717 14th Street, NW
Washington DC, DC 20005
United States
Ryan Riordan
Queen's University - Smith School of Business ( email )
Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada