Do informed traders win? An analysis of changes in corporate ownership around substantial shareholder notices

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Journal Article
International Review of Finance, 2005, 5 (3-4), pp. 113 - 148
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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.
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