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

Bonnie Van Ness, Robert Van Ness and Serhat Yildiz

Journal of Banking & Finance, 2021, vol. 131, issue C

Abstract: 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.

Keywords: Private information; Stock return synchronicity; Crashes and jumps; Price informativeness (search for similar items in EconPapers)
JEL-codes: D89 G12 G14 G19 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:131:y:2021:i:c:s0378426621001539

DOI: 10.1016/j.jbankfin.2021.106194

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