Informed trading and price discovery before corporate events

High-Frequency Measures of Informed Trading and Corporate Announcements

“…In a recent and important paper, Baruch, Panayides, and Venkataraman (2016) use order placement data that are available from the Euronext-Paris Exchange for 2003 to identify informed trading before unscheduled corporate events, which they operationalize as the difference between order placements prior to the event and order placements during a control period. They find evidence of more aggressive buy (sell) order placement strategies before good (bad) news events for stocks that are easy to sell short, but for stocks that are hard to sell short there is a decrease in the aggressiveness of sell orders prior to negative news events.…”

Intermarket Competition: Evidence from Trading Venue Short Sales

“…Since the arrival date of scheduled news known to the public in advance, uninformed traders may lower exposures to reduce adverse selection risk before scheduled corporate events and trading may be reflective of belief heterogeneity (see Lee, Mucklow, andReady 1993 andSarkar andSchwartz, 2009). Baruch, Panayides, and Venkataraman (2015) argues that examining unscheduled corporate news releases provides a better setting for studying informed trading as uninformed traders likely do not know when unscheduled news will arrive. Similarly, Sarkar and Schwartz (2009) finds that unscheduled corporate news announcements are preceded by relatively more one sided trading than scheduled macroeconomic announcements.…”

“…In order to understand where the informed trade when information is short-lived, I study trading surrounding a sample of corporate news events. Since the arrival date of scheduled news known to the public in advance, uninformed traders may lower exposures to avoid adverse selection (as in Glosten and Milgrom, 1985) and pre-announcement trading may be reflective of belief heterogeneity (see Lee, Mucklow, and Ready, 1993;Sarkar and Schwartz, 2009;and Baruch, Panayides, and Venkataraman, 2015). However, uninformed traders likely do not know when unscheduled news will arrive and research has found pre-announcement trading to be reflective of asymmetric information.…”

The type of corporate announcements and its implication on trading behaviour

“…Existing studies, which are theoretically initialled by Kyle () and Glosten and Milgrom (), largely focus on the boosted trading volume. Boosted volume prior to public announcements is typically explained as informed traders building on positions with private information (e.g., Aktas et al ., ; Kaniel et al ., ; and Baruch et al ., ). In contrast, the exploration of the reduced volume response remains limited; this shares equivalent importance to the boosted volume (Gervais et al ., ).…”

“…My study contributes to the literature on pre‐announcement trading behaviours, which tends to focus on boosted informed trading, trades by insiders (Meulbroek, ; Ravina and Sapienza, ; Cohen et al ., ) and trades beyond insiders (Aktas et al ., ; Christophe et al ., ; Kaniel et al ., ; Baruch et al ., ). Few studies have addressed the reduced response in trading behaviours, and they are mainly concentrated on insider silence (Marin and Olivier, ; Lei and Wang, ; Akbas, ), and investor inattention (Loh, ; Louis and Sun, ; Michaely et al ., ).…”