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Do Informed Traders Win? An Analysis of Changes in Corporate Ownership around Substantial Shareholder Notices

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  • RAYMOND DA SILVA ROSA
  • NIRMAL SAVERIMUTTU
  • TERRY WALTER

Abstract

The financial economics literature typically distinguishes between two classes of investors, namely ‘informed’ and ‘uninformed’ traders. Informed traders are those who possess some fundamental information about the true value of an asset, which is not readily available to other traders. Presuming that this information advantage is obtained from costly information search there is a general assumption that these traders realize superior returns. Unlike previous researchers, we access a unique panel of institutional and retail ownership (Clearing House Electronic Subregister System, CHESS records) that enable us to develop powerful measures that capture and benchmark abnormal changes in the share register across a number of dimensions. We find some evidence of a positive and significant relationship between the level of informed trading in the share register and abnormal market performance. However, our results suggest that informed traders move in and out of the share register in response to abnormal market performance, rather than in anticipation of abnormal market performance.

Suggested Citation

  • Raymond Da Silva Rosa & Nirmal Saverimuttu & Terry Walter, 2005. "Do Informed Traders Win? An Analysis of Changes in Corporate Ownership around Substantial Shareholder Notices," International Review of Finance, International Review of Finance Ltd., vol. 5(3‐4), pages 113-147, September.
    • Handle: RePEc:bla:irvfin:v:5:y:2005:i:3-4:p:113-147
    DOI: 10.1111/j.1468-2443.2006.00053.x
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    References listed on IDEAS

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    1. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    2. Josef Lakonishok & Inmoo Lee, 1998. "Are Insiders' Trades Informative?," NBER Working Papers 6656, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Nguyen Ngoc Anh Le & Xiangkang Yin & Jing Zhao, 2020. "Effects of investor tax heterogeneity on stock prices and trading behaviour around the ex‐dividend day: the case of Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3775-3812, December.
    2. McAdam, Chris, 2020. "Are investors compensated for their sophistication and informedness for company takeovers – An Australian study," Global Finance Journal, Elsevier, vol. 44(C).
    3. Ludvig Bohlin & Martin Rosvall, 2014. "Stock Portfolio Structure of Individual Investors Infers Future Trading Behavior," PLOS ONE, Public Library of Science, vol. 9(7), pages 1-8, July.

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