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Trading Against the Random Expiration of Private Information: A Natural Experiment
Author(s) -
BOLANDNAZAR MOHAMMADREZA,
JACKSON ROBERT J.,
JIANG WEI,
MITTS JOSHUA
Publication year - 2020
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/jofi.12844
Subject(s) - pace , private information retrieval , exploit , commission , business , natural experiment , monetary economics , actuarial science , finance , economics , computer science , computer security , statistics , mathematics , geodesy , geography
For years, the Securities and Exchange Commission (SEC) accidentally distributed securities disclosures to some investors before the public. We exploit this setting, which is unique because the delay until public disclosure was exogenous and the private information window was well defined, to study informed trading with a random stopping time. Trading intensity and the pace at which prices incorporate information decrease with the expected delay until public release, but the relation between trading intensity and time elapsed varies with traders' learning process. Noise trading and relative information advantage play similar roles as in standard microstructure theories assuming a fixed time window.