Posted by Michael J. Brennan (UCLA), Sahn-Wook Huh (SUNY at Buffalo), and Avanidhar Subrahmanyam (UCLA), on Tuesday, February 13, 2018
Editor's Note: Michael J. Brennan is Professor Emeritus of Finance at the UCLA Anderson School of Management, and Professor of Finance at the University of Manchester Business School; Sahn-Wook Huh is Associate Professor of Finance at the University (SUNY) at Buffalo School of Management; and Avanidhar Subrahmanyam is Professor of Finance at the UCLA Anderson School of Management. This post is based on their recent article, forthcoming in The Review of Financial Studies.
While the activities of privately informed traders have been studied extensively, it remains a challenge to obtain empirical evidence on trading by informed investors because of the difficulty of determining when trades result from private information. In this article, we use comprehensive transactions datasets to analyze informed trading around three unscheduled corporate announcements (M&As, SEOs, and dividend initiations), as well as around pre-scheduled earnings announcements. We also examine the links between our informed-trading measures and stock returns around the announcements.