Download This PaperLiquidity and the Strategic Value of Information
Review of Finance, 2024[10.1093/rof/rfae040]
55 Pages Posted: 9 Jul 2020 Last revised: 10 Nov 2024
Date Written: July 7, 2020
Abstract
In Kyle (1985), the ratio of fundamental variance to price impact measures the value of information to a monopolist strategic informed investor. We show this same statistic provides an approximation for the value of information in a more general setting with multiple differentially-informed investors, and estimate it using high-frequency stocks data. We find that the value of information rises during crises. The value of information is higher for large, growth, and momentum stocks. Its most dramatic spikes occur at the start of the Covid-19 pandemic and the financial crisis of 2008, when the Fed announces liquidity facilities.
Keywords: value of information, liquidity, strategic trading, Covid-19
Suggested Citation: Suggested Citation
Kadan, Ohad and Manela, Asaf, Liquidity and the Strategic Value of Information (July 7, 2020). Review of Finance, 2024[10.1093/rof/rfae040], Available at SSRN: https://ssrn.com/abstract=3645137 or http://dx.doi.org/10.1093/rof/rfae040
Ohad Kadan
Washington University in St. Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Asaf Manela (Contact Author)
Washington University in St. Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-9178 (Phone)
HOME PAGE: http://apps.olin.wustl.edu/faculty/manela
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