Searching for informed traders in stock markets: The case of Banco Popular

Jorge V. Pérez-Rodríguez, Simon Sosvilla-Rivero, Julián Andrada-Felix and Emilio Gómez-Déniz

The North American Journal of Economics and Finance, 2022, vol. 63, issue C

Abstract: In this paper, we use several indicators of trade informativeness to search for informed traders on the final trading days of Banco Popular, the first and only bank resolution case to date in the euro area. In particular, we use the model proposed by Preve and Tse (2013) to estimate the adjusted daily probability of informed trading and the probability of symmetric order-flow shock using high-frequency transaction data. Our empirical results indicate that upon the anticipation of a possible liquidation of the bank, informed investors reacted to the bad news by placing more weight on it and that Banco Popular experienced large increases in both buy- and sell-orders during the last days of trading when the bank registered a significant depletion of its deposit base. Moreover, we find evidence supporting the presence of inside trading and illiquidity, especially after speculation in the media that the bank could face a liquidation. Our study has important implications for market participants and regulatory authorities.

Keywords: Asymmetric information; Probability of informed trading; Probability of symmetric order-flow shocks; High-frequency data; Bank failure (search for similar items in EconPapers)
JEL-codes: C13 C41 D53 D82 G12 G14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:63:y:2022:i:c:s1062940822001292

DOI: 10.1016/j.najef.2022.101791

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