Using plausibly exogenous variation in the ability to short-sell, we provide evidence that public information is predominantly impounded into prices via trade. Studying the role of trade in the context of publicly-observed cash flow news, we find that only 6% of total price discovery is realized on announcement days with low trade. A portfolio strategy that focuses on stocks with high announcement-day trade yields monthly alpha of 2.46%. In contrast to the predictions of the literature on no-trade equilibria, our evidence suggests that trade plays a significant role in price discovery.
Felix Nockher
Contact Information
- Primary Email:
fnockher@wharton.upenn.edu - Office Phone:
215-898-7622
- office Address:
2428 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
Research Interests: corporate finance, corporate governance, financial markets and their frictions
Links: Personal Website
Activity
Latest Research
All ResearchIn the News
How Dynamic Electricity Pricing Can Improve Market EfficiencyNew research co-authored by Wharton's Arthur van Benthem demonstrates how consumers could benefit from aligning electricity prices with the cost of producing and distributing that power.…Read More
Knowledge @ Wharton - 2024/11/12