Sugato Chakravarty

Stealth-trading: Which traders’ trades move stock prices? ☆

Using audit trail data for a sample of NYSE firms, we show that medium size trades are associated with a disproportionately large cumulative stock price change relative to their proportion of all trades and volume. This result is consistent with the predictions of the stealth- trading hypothesis (Barclay and Warner (1993)). We find that the source of this disproportionately large cumulative price impact of medium size trades is trades initiated by institutions. This result appears robust to various sensitivity checks. Our findings appear to confirm street lore that institutions are informed traders.

Information asymmetry, market segmentation and the pricing of cross-listed shares: theory and evidence from Chinese A and B shares

Abstract In contrast to most other countries, Chinese foreign class B shares trade at an average discount of about 60% to the prices at which domestic A shares trade. We argue that one reason for the large price discount of B shares is because foreign investors have less information on Chinese stocks than domestic investors. We develop a model, incorporating both information asymmetry and market segmentation, and derive a relative pricing equation for A shares and B shares. We show theoretically that an A share index security, tradable by foreigners, increases the liquidity of B shares. Our empirical study of Chinese stocks supports the predictions of our model. Specifically, we show that our model-based proxies for information asymmetry explain a significant portion of the cross-sectional variation of the B share discounts.

Does Insider Trading Really Move Stock Prices

Prior studies have reported a positive correlation between insider trading and stock price changes implying that insider (i.e., informed) trades affect price discovery differently than non-insider (i.e., uninformed) trades. Based on these results, various scholars have argued for the legalization of insider trading to facilitate rapid price discovery. We analyze the trading activity of a confessed inside trader, Ivan Boesky, in Carnations stock just prior to Nestles 1984 acquisition of Carnation, and find that our tests are unable to distinguish the price effect of Boeskys (i.e., informed) purchases of Carnations stock from the effect of non-insider (i.e., uninformed) purchases. Our conclusion survives extensive robustness tests and has methodological and public policy implications.

Liquidity in U.S. Fixed Income Markets: A Comparison of the Bid-Ask Spread in Corporate, Government and Municipal Bond Markets

We examine the determinants of the realized bid-ask spread in the U.S. corporate, municipal and government bond markets for the years 1995 to 1997, based on newly available transactions data. Overall, we find that liquidity is an important determinant of the realized bid-ask spread in all three markets. Specifically, in all markets, the realized bid-ask spread decreases in the trading volume. Additionally, risk factors are important in the corporate and municipal markets. In these markets, the bid-ask spread increases in the remaining-time-to maturity of a bond. The corporate bond spread also increases in credit risk and the age of a bond. The municipal bond spread increases in the after-tax bond yield. Controlling for others factors, the municipal bond spread is higher than the government bond spread by about 9 cents per

An Analysis of Prices, Bid/Ask Spreads, and Bid and Ask Depths Surrounding Ivan Boesky's Illegal Trading in Carnation's Stock

100 par value, but the corporate bond spread is not. Consistent with improved pricing transparency, the bid-ask spread in the corporate and municipal bond markets is lower in 1997 by about 7 to 11 cents per

Trading Costs in Three U.S. Bond Markets

100 par value, relative to the earlier years. Finally, the ten largest corporate bond dealers earn 15 cents per

Relationships and individuals' bank switching behavior

100 par value higher than the remaining dealers, after controlling for differences in the characteristics of bonds traded by each group. We find no such differences for the government and municipal bond dealers.

A Multistage Model of Loans and the Role of Relationships

In 1984, Ivan Boesky purchased 1.7 million shares of Carnations stock on the basis of illegally obtained insider information. The events and data allow testing of the impact of informed trading on share prices and market liquidity. A positive and significant relation is found between Boeskys trades and stock price changes, but bid/ask spreads were not significantly affected. Bid and ask depths were either unaffected or improved by his trades.

Clean Sweep: Informed Trading Through Intermarket Sweep Orders

Newly available transaction data are available for comparison of trading costs in the U.S. Treasury bond market with U.S. corporate and municipal bond markets. The mean bid-ask spread per

A model of broker's trading, with applications to order flow internalization

100 par value is estimated at 23 cents for municipal bonds, 21 cents for corporate bonds, and 8 cents for Treasury bonds. Maturity, trade size, and credit ratings are key determinants of the bid-ask spread. After controlling for credit risk, the bid-ask spread is not statistically different between corporate and Treasury markets but it is higher for municipal bonds relative to Treasuries.