Do Prices Reveal the Presence of Informed Trading?

Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists accumulate shares, measures of adverse selection and of stock illiquidity are lower, even though prices are positively impacted. Two channels help explain this phenomenon: (1) activists select times of higher liquidity when they trade, and (2) activists use limit orders. We conclude that, when informed traders can select when and how to trade, standard measures of adverse selection may fail to capture the presence of informed trading.


Published in:
Journal Of Finance, 70, 4, 1555-1582
Year:
2015
Publisher:
Hoboken, Wiley-Blackwell
ISSN:
0022-1082
Laboratories:




 Record created 2015-09-28, last modified 2018-09-13


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