Discussion paper

DP12871 Chasing Private Information

Using over 5000 equity and option trades unequivocally based on nonpublic information about firm fundamentals, we find that widely used adverse selection signals display abnormal values on days with informed trading. Volatility and volume values are abnormally high, whereas illiquidity values are low, both in equity and options markets. Signals are more sensitive to informed trading in options markets and before unscheduled corporate announcements. We characterize cross-sectional responses based on the sign, type, and duration of private information. Evidence from the U.S. Securities and Exchange Commission (SEC) Whistleblower Reward Program addresses potential selection concerns.


Kacperczyk, M and E Pagnotta (2018), ‘DP12871 Chasing Private Information‘, CEPR Discussion Paper No. 12871. CEPR Press, Paris & London. https://cepr.org/publications/dp12871