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High-Frequency Measures of Informed Trading and Corporate Announcements

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  • Michael J. Brennan
  • Sahn-Wook Huh
  • Avanidhar Subrahmanyam

Abstract

We explore the dynamics of informed trading around corporate announcements of merger bids, dividend initiations, SEOs, and quarterly earnings by calculating daily posterior probabilities of informed buying and selling. We find evidence of informed trading before the announcements and a significant part of the news in announcements is impounded in stock prices before the announcements by pre-event informed trading. We also find evidence of informed trading after the announcements. Most strikingly, the probability of informed trading after merger bids predicts the probability of the bid being withdrawn or met with a competing bid. For other announcements, post-announcement informed-trading probabilities predict subsequent returns. Received September 26, 2016; editorial decision December 17, 2017 by Editor Andrew Karolyi.

Suggested Citation

  • Michael J. Brennan & Sahn-Wook Huh & Avanidhar Subrahmanyam, 2018. "High-Frequency Measures of Informed Trading and Corporate Announcements," The Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2326-2376.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:6:p:2326-2376.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy005
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