Prices and informed trading: Evidence from an early stock market

Graeme G. Acheson, Christopher Coyle and John Turner ()

No 2018-05, QUCEH Working Paper Series from Queen's University Belfast, Queen's University Centre for Economic History

Abstract: Using a novel dataset where all traders are identifiable, we examine trading in the shares of a major company on the London Stock Exchange before 1920. Our main finding is that bid-ask spreads increased in the presence of informed trades. However, we also find that spreads narrowed during periods of informed trading when such trades were timed to periods of large uninformed volume and that professional traders consistently timed larger volume to such periods. We also find that spreads increased during the 1914 closure of the Stock Exchange. Our results provide support for the classical microstructure theories of informed trading.

Keywords: Informed Trading; Uninformed Trading; Liquidity; Effective Spread; Adverse Selection; Stock Exchange Closure (search for similar items in EconPapers)
JEL-codes: G12 N23 N24 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-his and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:qucehw:201805

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