Working Paper: CEPR ID: DP16476
Authors: Jeffrey L. Callen; Ron Kaniel; Dan Segal
Abstract: This study investigates the price discovery process in equity markets with informed institutional investors. Consistent with extant theories, we show empirically that institutional investors, in contrast to retail investors, trade based on the leaked sign of unanticipated news and then (partially) reverse their trades when the news become public. We also find that the longer the leakage period for institutional investors to exploit, the less informative is the news when it becomes public. These results are robust to controls for firm press releases and news articles and endogeneity concerns.
Keywords: filing lag; institutional trading; 8-K reports; private information
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| filing lag (K41) | institutional trading (G14) |
| information leakage (D82) | institutional trading (G14) |
| filing lag (K41) | information content of news (D83) |
| filing lag (K41) | trading volume (G15) |
| filing lag (K41) | equity return volatility (G17) |
| information leakage (D82) | superior returns (G19) |