Non-Fundamental Speculation

Madrigal, Vicente

doi:10.2307/2329371

Cited by 22 publications

(23 citation statements)

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“…However, if the large order is submitted by an informed investor, the price changes due to predictable patterns should be permanent. Such a permanent price impact ( PPI ) would be consistent with the back‐running theory presented in Madrigal () and Yang and Zhu (). These papers use two‐period Kyle models in which an informed investor trades on private information in the first period and strategic traders receive an imperfect signal about this in the second period.…”

Section: Theoretical Framework and Hypotheses Developmentsupporting

confidence: 86%

Order anticipation around predictable trades

Sağlam

2018

Financial Management

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I study the presence of order anticipation strategies by examining predictable patterns in large order trades. I construct three simple signals based on child‐order execution patterns and find empirical evidence that stronger signals are correlated with higher execution costs. I use the SEC's (Securities and Exchange Commission's) ban on unfiltered access and increase in noise trading as shocks to order anticipatory activities of algorithmic traders and find that the price impact of predictability is smaller when order anticipation becomes difficult. The empirical findings are mostly consistent with the back‐running theory that predicts delayed price impact as strategic traders learn about large orders gradually.

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Section: Theoretical Framework and Hypotheses Developmentsupporting

confidence: 86%

Order anticipation around predictable trades

Sağlam

2018

Financial Management

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“…If a bank disposes of private information about a stock's fundamentals, the bank will attempt to prevent others from inferring this information from its order flows and from front‐running. For example, Madrigal () formally shows that less informed traders can free‐ride on the trades of better informed traders at the expense of the latter's trading profits . In a recent paper, Agarwal et al.…”

Section: Stock Flows Between Banks and Their Retail Customersmentioning

confidence: 99%

Is Proprietary Trading Detrimental to Retail Investors?

Fecht¹,

Hackethal²,

Karabulut

2018

The Journal of Finance

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We study the conflict of interest that arises when a universal bank conducts proprietary trading alongside its retail banking services. Our data set contains the stock holdings of every German bank and those of their corresponding retail clients. We investigate (i) whether banks sell stocks from their proprietary portfolios to their retail customers, (ii) whether those stocks subsequently underperform, and (iii) whether retail customers of banks engaging in proprietary trading earn lower portfolio returns than their peers.We present affirmative evidence for all three questions and conclude that proprietary trading can, in fact, be detrimental to retail investors.

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“…Confidentiality not only allows informed traders to spread their trading over a longer period of time under minimal dissimulation (as shown by our model in the Internet Appendix), but also protects them from being strategically traded against (i.e., front‐run) by others. Less informed traders can benefit from the knowledge about more informed traders at the latter's cost (Foster and Viswanathan (1994) and Madrigal (1996)). Such costs have been empirically shown to be substantial for informed traders.…”

Section: Sample Overview and Empirical Motivationmentioning

confidence: 99%

Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide

Agarwal¹,

Jiang²,

Tang³

et al. 2013

The Journal of Finance

244

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This paper studies the “confidential holdings” of institutional investors, especially hedge funds, where the quarter‐end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information‐sensitive events or share characteristics indicating greater information asymmetry. Confidential holdings exhibit superior performance up to 12 months, and tend to take longer to build. Together the evidence supports private information and the associated price impact as the dominant motives for confidentiality.

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Non-Fundamental Speculation

Cited by 22 publications

References 0 publications

Order anticipation around predictable trades

Order anticipation around predictable trades

Is Proprietary Trading Detrimental to Retail Investors?

Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide

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