Private information in trades, R2, and large stock price movements

We investigate the relations between trading-conveyed private information and stock return distributions. Using high-frequency measures of private information, we find that private information in trades is associated with lower stock return synchronicity. We also find private information in trades i...

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Bibliographic Details
Published in:Journal of banking & finance 2021-10, Vol.131, p.106194, Article 106194
Main Authors: Van Ness, Bonnie, Van Ness, Robert, Yildiz, Serhat
Format: Article
Language:English
Subjects:
Crashes and jumps
Price informativeness
Private information
Stock return synchronicity
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Summary:We investigate the relations between trading-conveyed private information and stock return distributions. Using high-frequency measures of private information, we find that private information in trades is associated with lower stock return synchronicity. We also find private information in trades is positively associated with stock price crashes and positive stock price jumps. Our results are robust to several specification checks, including the use of alternative private information proxies, various model specifications, and different time periods. Overall, we demonstrate that trading conveyed private information reduces stock return synchronicity and predicts the frequency of crashes and jumps. Our findings can be useful for market makers, regulators, and traders, who are interested in firm-specific return variation and extreme stock price movements at high frequencies.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2021.106194