Liquidity and the strategic value of information

Ohad Kadan and Asaf Manela

Review of Finance, 2025, vol. 29, issue 1, 1-32

Abstract: In Kyle (1985), the ratio of fundamental variance to price impact measures the value of information to a monopolist strategic informed investor. We show that this same statistic provides an approximation for the value of information in a more general setting with multiple differentially informed investors, and estimate it using high-frequency stocks data. We find that the value of information rises during crises. The value of information is higher for large, growth, and momentum stocks. Its most dramatic spikes occur at the start of the Covid-19 pandemic and the financial crisis of 2008, when the Fed announces liquidity facilities.

Keywords: value of information; liquidity; strategic trading; Covid-19 (search for similar items in EconPapers)
JEL-codes: G01 G14 (search for similar items in EconPapers)
Date: 2025
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