Information, Trading and Product Market Interactions: Cross-Sectional Implications of Informed Trading

53 Pages Posted: 7 Aug 2003 Last revised: 23 Oct 2008

See all articles by Heather Tookes

Heather Tookes

Yale University - Yale School of Management; Yale University - International Center for Finance

Abstract

I present a simple model of informed trading in which asset values are derived from imperfectly competitive product markets and private information events occur at individual firms. The model predicts that informed traders may have incentives to make information-based trades in the stocks of competitors, especially when events occur at firms with large market shares. In the context of 759 earnings announcements, I use intraday transactions data to test the hypothesis that net order flow and returns in the stocks of non-announcing competitors have information content for announcing firms.

JEL Classification: G10, G14, G18, I13

Suggested Citation

Tookes, Heather, Information, Trading and Product Market Interactions: Cross-Sectional Implications of Informed Trading. AFA 2004 San Diego Meetings; Journal of Finance, Vol. 63, No. 1, 2008; EFA 2003 Annual Conference Paper No. 68. Available at SSRN: https://ssrn.com/abstract=424940 or http://dx.doi.org/10.2139/ssrn.424940

Heather Tookes (Contact Author)

Yale University - Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

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