Good (Bad) News and the Probability of Informed Trading: Evidence from Illegal Insider Trading

Shunyu Su and Yezhou Sha

Emerging Markets Finance and Trade, 2024, vol. 60, issue 5, 1077-1086

Abstract: We present a closed-form solution connecting the probability of informed trading ($PIN$PIN) to the overlooked parameter that signaling private information is good or bad. Estimating $PIN$PIN using illegal insider trading data, we find it sensitive to the certainty of positive private information in addition to the existed explanations, offering a new explanation for $PIN$PIN‘s limitations in prior literature.

Date: 2024
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DOI: 10.1080/1540496X.2023.2266111

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