Price Revelation from Insider Trading: Evidence from Hacked Earnings News
Vincent Grégoire and
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Vincent Grégoire: HEC Montréal
Charles Martineau: University of Toronto
No qe6tu, SocArXiv from Center for Open Science
From 2010 to 2015, a group of traders illegally accessed earnings information before their public release by hacking several newswire services. We use this scheme as a natural experiment to investigate how informed investors select among private signals and how efficiently financial markets incorporate private information contained in trades into prices. We construct a measure of qualitative information using machine learning and find that the hackers traded on both qualitative and quantitative signals. The hackers’ trading caused 15% more of the earnings news to be incorporated in prices before their public release. Liquidity providers responded to the hackers’ trades by widening spreads.
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