| By: |
Paolo Bizzozero (Department of Business Administration, University of Zurich);
Raphael Flepp (Department of Business Administration, University of Zurich);
Egon Franck (Department of Business Administration, University of Zurich) |
| Abstract: |
We present evidence that insider trading substantially contributes to the
price discovery process after important news events and thus helps to create
effcient markets. Live betting offers a unique opportunity to isolate and
measure the activity of traders with earlier access to information (insiders).
We perform an event study using detailed, point-by-point data from 141 men’s
singles matches at two major professional tennis tournaments. The results show
that betting prices start updating long before the general public receives the
new information, indicating the existence of insider traders. Most
importantly, the cumulative abnormal return during the first few seconds of
insider trading following an important event is more than 60% of the full
price reaction observed once the public receives the new information, meaning
that insider trading has a large impact on price discovery. We also show that
a simple trading strategy based on inside information can generate significant
returns. |
| Keywords: |
Market effciency, insider trading, event study, tennis betting |
| JEL: |
G14 L83 |
| Date: |
2017–08 |
| URL: |
http://d.repec.org/n?u=RePEc:zrh:wpaper:368&r=spo |