Are trading imbalances indicative of private information?

Sukwon Thomas Kim and Hans Stoll

Journal of Financial Markets, 2014, vol. 20, issue C, 151-174

Abstract: Trading imbalances are often interpreted to be the result of informed trading. Yet imbalances may simply reflect random shocks or the results of liquidity trading. If trading imbalances reflect informed trading, they should anticipate major news events. Using announcements of earnings, acquisition targets, and seasoned equity offerings as our information events, we examine whether prior trading imbalances are related to the subsequent news. We conclude that imbalances do not well reflect the information held by informed traders. Trading imbalances do have price effects, but they are contemporaneous and are not significantly correlated with the forthcoming announcements.

Keywords: Trading imbalance; Order imbalance; Informed trading; Private information; Earnings announcements; Mergers and acquisitions; Seasoned equity offerings (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:20:y:2014:i:c:p:151-174

DOI: 10.1016/j.finmar.2014.03.003

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