Stock prices incorporate less news before negative events than positive events. Further, informed agents use less price aggressive (limit) orders before negative events and more price aggressive (market) orders before positive events (buy–sell asymmetry). Motivated by these patterns, we model the execution risk that informed agents impose on each other and relate the asymmetry to costly short selling. When investor base is narrow, security borrowing is difficult, or the magnitude of the event is small, buy–sell asymmetry is pro- nounced and price discovery before negative events is lower. Overall, we show that the strategies of informed traders influence the process of price formation in financial mar- kets, as predicted by theory.

Baruch, S.n., Panayides, M., Venkataraman, K. (2017). Informed trading and price discovery before corporate events. JOURNAL OF FINANCIAL ECONOMICS, 561-588.

Informed trading and price discovery before corporate events

Shmuel Baruch;
2017-01-01

Abstract

Stock prices incorporate less news before negative events than positive events. Further, informed agents use less price aggressive (limit) orders before negative events and more price aggressive (market) orders before positive events (buy–sell asymmetry). Motivated by these patterns, we model the execution risk that informed agents impose on each other and relate the asymmetry to costly short selling. When investor base is narrow, security borrowing is difficult, or the magnitude of the event is small, buy–sell asymmetry is pro- nounced and price discovery before negative events is lower. Overall, we show that the strategies of informed traders influence the process of price formation in financial mar- kets, as predicted by theory.
2017
Pubblicato
Rilevanza internazionale
Articolo
Esperti anonimi
Settore SECS-P/09 - FINANZA AZIENDALE
English
Informed trader, Insider trading, Limit order, Short selling, Buy–sell asymmetry
Baruch, S.n., Panayides, M., Venkataraman, K. (2017). Informed trading and price discovery before corporate events. JOURNAL OF FINANCIAL ECONOMICS, 561-588.
Baruch, Sn; Panayides, M; Venkataraman, K
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/313782
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