Does Disagreement Facilitate Informed Trading?

45 Pages Posted: 18 Feb 2021 Last revised: 18 Apr 2022

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Marina Niessner

University of Pennsylvania - The Wharton School

Date Written: April 16, 2022

Abstract

Using high-frequency disagreement data from the investor social network StockTwits, we find that greater investor disagreement facilitates informed trading by activists, opportunistic insiders, and short sellers. These findings are unexplained by sentiment, news, and retail order flow, and they remain when we measure disagreement overnight, which alleviates concern that disagreement and informed trading respond to a common shock. When short selling is costly, the facilitating effect of disagreement on trading is dampened for informed buyers but is amplified for sellers. These findings suggest that informed traders respond meaningfully to valuation changes induced by disagreement.

Keywords: disagreement, informed trading, short sellers, insider trading, activist investors

JEL Classification: G02, G14, G34

Suggested Citation

Cookson, J. Anthony and Fos, Vyacheslav and Niessner, Marina, Does Disagreement Facilitate Informed Trading? (April 16, 2022). Available at SSRN: https://ssrn.com/abstract=3765092 or http://dx.doi.org/10.2139/ssrn.3765092

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Vyacheslav Fos (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Marina Niessner

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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