Strategic Informed Trades and Tiny Trades

80 Pages Posted: 19 Feb 2024

See all articles by Wenwei Lin

Wenwei Lin

University of Minnesota, Carlson School of Management

Date Written: January 15, 2024

Abstract

This paper studies how institutional investors strategically respond to an anticipated surge in tiny retail trades. Exploiting positive 8-K filings as informational events, I present three findings. First, stocks exposed to intense fractional trading exhibit substantial price pressure and volatility following filings, displaying an initial overshoot and subsequent reversal. Second, institutional investors leverage such price pressure and volatility by delaying immediate sales upon filing and even accumulating additional stakes to ride the mispricing post-filing. Third, increased post-filing trading profits incentivize information acquisition. These results suggest that institutional investors adapt to the evolving landscape of retail trading in today’s markets, albeit leading to delayed price discovery.

Keywords: Informed Trading, Fractional Trading, 8-K Filings, Social Media, Price Discovery

JEL Classification: G10, G12, G14, G23, G41, M41

Suggested Citation

Lin, Wenwei, Strategic Informed Trades and Tiny Trades (January 15, 2024). Available at SSRN: https://ssrn.com/abstract=4722723 or http://dx.doi.org/10.2139/ssrn.4722723

Wenwei Lin (Contact Author)

University of Minnesota, Carlson School of Management ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

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