Probability of Information-Based Trading, Intraday Liquidity and Corporate Governance in the Brazilian Stock Market
19 Pages Posted: 9 Apr 2007
Date Written: April, 2007
Non-traditional listing rules on stock exchanges based on corporate governance practices criteria may ensure investors a higher level of protection and constrain expropriation of minority shareholders. We investigate how distinct listing levels, different according to the quality of corporate governance practices, a natural experiment provided by the Brazilian stock exchange (Bovespa), and liquidity levels are associated to the probability of informed trading (PIN) using the number of intraday buy and sell orders. We find that PIN is lower in stricter corporate governance practices listing levels, after controlling for liquidity. Greater liquidity is associated to a lower PIN particularly due to the presence of non-informed investors.
Keywords: PIN; Listing requirements, emerging markets, corporate governance, insider trading
JEL Classification: G14, G15, G34
Suggested Citation: Suggested Citation