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Liquidity and the strategic value of information

Author

Listed:
  • Ohad Kadan
  • Asaf Manela

Abstract

In Kyle (1985), the ratio of fundamental variance to price impact measures the value of information to a monopolist strategic informed investor. We show that this same statistic provides an approximation for the value of information in a more general setting with multiple differentially informed investors, and estimate it using high-frequency stocks data. We find that the value of information rises during crises. The value of information is higher for large, growth, and momentum stocks. Its most dramatic spikes occur at the start of the Covid-19 pandemic and the financial crisis of 2008, when the Fed announces liquidity facilities.

Suggested Citation

  • Ohad Kadan & Asaf Manela, 2025. "Liquidity and the strategic value of information," Review of Finance, European Finance Association, vol. 29(1), pages 1-32.
    • Handle: RePEc:oup:revfin:v:29:y:2025:i:1:p:1-32.
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    File URL: http://hdl.handle.net/10.1093/rof/rfae040
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    More about this item

    Keywords

    value of information; liquidity; strategic trading; Covid-19;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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