The Behavior of Uninformed Investors and Time-Varying Informed Trading Activities

2001 ◽  
Author(s):  
Qin Lei ◽  
Guojun Wu
Keyword(s):  
Informed Trading ◽  
Time Varying ◽  
Trading Activities

The Price of Street Friends: Social Networks, Informed Trading, and Shareholder Costs

2016 ◽  
Vol 51 (3) ◽  
pp. 801-837 ◽  
Author(s):  
Jie Cai ◽  
Ralph A. Walkling ◽  
Ke Yang
Keyword(s):  
Social Ties ◽  
Leisure Activities ◽  
Informed Trading ◽  
Trading Costs ◽  
Natural Experiments ◽  
Positive Relation ◽  
Privileged Information ◽  
Trading Activities ◽  
Stock Transaction ◽  
The Cost

AbstractRecent studies suggest the transfer of privileged information via social ties but do not explicitly examine the cost of these ties to shareholders. We document a significant positive relation between stock transaction costs and a company’s social ties to the investment community. Social ties based on education and leisure activities, stronger ties, and ties to individuals responsible for trading have greater effects. Using investment connection deaths as natural experiments, we document that exogenous severance of ties reduces trading costs and trading activities by connected parties. Our evidence illustrates an important and previously undocumented consequence of social ties.

scholarly journals Corporate governance and the divergence of learning channels

2011 ◽  
Vol 8 (3) ◽  
pp. 9-17
Author(s):  
William Ming Yan Cheung ◽  
Adrian Lei ◽  
Libin Tao
Keyword(s):  
Corporate Governance ◽  
Stock Prices ◽  
Stock Price ◽  
Informed Trading ◽  
Market Liquidity ◽  
Price Informativeness ◽  
Cross Sectional ◽  
Bid Ask Spread ◽  
Trading Activities ◽  
Stock Price Informativeness

We study the relation between corporate governance, market liquidity and stock price informativeness. Firms with more informative stock prices are associated with larger transaction volume, larger bid-ask spread and better corporate governance. Thisliquidity-informativeness relation is significant for firms with high antitakeover provision (bad corporate governance). However, bid-ask spread is insignificantly associated withprice informativeness for firms with less antitakeover provision (good corporate governance). This supports that firm-specific return variation better measures stock price informativeness when firm has strong corporate governance framework. Our results suggest that (i) more (less) informed trading activities associated with weak (strong) corporate governance, and (ii) corporate governance explains the cross-sectional variation in information efficiency of stock prices. Our results are consistent with theories in financial market learning that investor learn from informed trading activities associated with weak governance firms and informative disclosure from strong governance firms.

Informed Trading and the Market Reaction to Accounting Restatements

2011 ◽  
Vol 86 (5) ◽  
pp. 1519-1547 ◽  
Author(s):  
Brad A Badertscher ◽  
S. Paul Hribar ◽  
Nicole Thorne Jenkins
Keyword(s):  
Insider Trading ◽  
Market Reaction ◽  
Informed Trading ◽  
Data Availability ◽  
Stock Repurchases ◽  
Reverse Causality ◽  
Accounting Restatements ◽  
Market Reactions ◽  
Trading Activities ◽  
The Difference

ABSTRACT We examine how informed trading activities affect the market reaction to accounting restatements. We find significantly less negative reactions to accounting restatements when managers are net purchasers of stock before the restatement, and significantly more negative market reactions when managers are net sellers. Similar patterns characterize corporate trading, where prior stock repurchases dampen negative reactions and prior equity issuances increase negative reactions to the restatement. We address the possibility of reverse causality in which informed trades are undertaken because of the expected market reaction by examining the difference between disclosed and non-disclosed trades, finding that the market reaction is concentrated in the disclosed trades. Our results are incremental to general return patterns associated with insider trading and corporate equity transactions, and hold after controlling for other determinants of the market reaction to restatements. Taken together, these findings suggest that investors use informed trading activities to help interpret and price accounting restatements. JEL Classifications: M41, M42. Data Availability: Data are publicly available from the sources identified in the study.

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