Do informed traders trade more when the market is thick? Evidence from the nikkei 225 index redefinition of April 2000
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
Original language | English |
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Pages (from-to) | 495-523 |
Journal / Publication | Asia-Pacific Journal of Financial Studies |
Volume | 39 |
Issue number | 4 |
Publication status | Published - Aug 2010 |
Link(s)
Abstract
Using the Nikkei 225 index redefinition that took place in April 2000, we examine whether informed traders strategically trade more when they face increased liquidity trading, as predicted by Admati & Pfleiderer (1988). The significant increase (decrease) in liquidity trading for the new additions (deletions) caused by index trading activities after index redefinition offers a valuable opportunity to empirically test the predictions of Admati and Pfleiderer. The April 2000 index redefinition was not accompanied by any information effects because the event itself was unrelated to changes in firm fundamentals, nor did it involve any information confirmation effects. Our empirical findings support the predictions of the strategic information trader model. We find that informed trading, as measured by the probability of informed trading, increases significantly after additions and decreases significantly after deletions. Further analysis reveals that probability of informed trading changes are associated with changes in investor composition, especially for domestic institutions and foreign shareholders. © 2010 Korean Securities Association.
Research Area(s)
- Index redefinition, Informed traders, Nikkei 225 index, Probability of informed trading, Strategic informed trading
Citation Format(s)
Do informed traders trade more when the market is thick? Evidence from the nikkei 225 index redefinition of April 2000. / Ahn, Hee-Joon; Cai, Jun; Chung, Jay M.
In: Asia-Pacific Journal of Financial Studies, Vol. 39, No. 4, 08.2010, p. 495-523.
In: Asia-Pacific Journal of Financial Studies, Vol. 39, No. 4, 08.2010, p. 495-523.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review