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Information, Trading, and Product Market Interactions: Cross‐sectional Implications of Informed Trading
Author(s) -
TOOKES HEATHER E.
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01319.x
Subject(s) - competitor analysis , private information retrieval , business , incentive , context (archaeology) , earnings , asset (computer security) , order (exchange) , product market , product (mathematics) , financial economics , monetary economics , economics , microeconomics , finance , marketing , computer science , biology , paleontology , geometry , computer security , mathematics
ABSTRACT I present a simple model of informed trading in which asset values are derived from imperfectly competitive product markets and private information events occur at individual firms. The model predicts that informed traders may have incentives to make information‐based trades in the stocks of competitors, especially when events occur at firms with large market shares. In the context of 759 earnings announcements, I use intraday transactions data to test the hypothesis that net order flow and returns in the stocks of nonannouncing competitors have information content for announcing firms.