Does Disagreement Facilitate Informed Trading? Evidence from Activist Investors

50 Pages Posted: 18 Feb 2021 Last revised: 12 Apr 2021

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

Yale School of Management

Date Written: April 12, 2021

Abstract

We study the effect of investor disagreement on informed trading by activist investors using high-frequency disagreement data derived from the investor social network StockTwits. Greater investor disagreement leads to more trading in the subsequent day by privately-informed activists. Disagreement leads to higher prices and improvements in measured liquidity, but these observed valuation and market liquidity differences do not explain the increase in activist trading. Instead, investor disagreement affects activist trading primarily by facilitating trading by non-activist investors. These findings suggest that investor disagreement not only affects trading by uninformed investors, but also facilitates trading by informed market participants who often take actions aimed at changing corporate policies.

Keywords: disagreement, informed trading, activist investors

JEL Classification: G02, G14, G34

Suggested Citation

Cookson, J. Anthony and Fos, Vyacheslav and Niessner, Marina, Does Disagreement Facilitate Informed Trading? Evidence from Activist Investors (April 12, 2021). 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

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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