Are the Insider Trades of a Large Institutional Investor Informed?

Abstract

We use a unique data set to consider whether a large institution's (Fidelity funds) insider trades are informed. Theoretical studies of large informed traders suggest that their information advantage could be greater for buy trades than sell trades, be short- or long-lived, and be exploited by varying the pace of trade execution. Although there is evidence of each of these, Fidelity seems to be informed only for quickly executed buy trades. Other trades outperform a stock market index but not a four-factor return model. This performance profile is consistent with Fidelity's fees, which depend on performance compared to an index. Copyright 2007, The Eastern Finance Association.

Anonymity, Stealth Trading, and the Information Content of Broker Identity

“…2 2 Previous literature shows that large informed traders tend to break up a large order into parcels, and the pace of trade execution can affect the exploitation of their information advantage (e.g., Vayanos, 2001; Golec, 2007). …”

Using the new portability election of deceased spouses

“…Fidelity's Megellan Fund has long been used as an evidence to defy EMH (see Kochman andBadarinathi 1993 andMarcus 1990). Fidelity's large size can also potentially gain an insider edge as Golec (2007) shows some evidence on informed trades made by Fidelity funds.…”