Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241186 
Year of Publication: 
2020
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2020-20
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Predatory trading discourages informed investors from gathering information and trading on it. However, using 11 years of equity trading data, we do not find evidence that informed investors are being discouraged. They have roughly constant volumes and profits through the sample. They are sophisticated, trading patiently over weeks and timing their trading to achieve negative price impacts, leaving price efficiency unchanged. We identify shorter-term traders and, in contrast to theory, find that they supply liquidity by trading in the opposite direction of the informed. Inefficient prices may be the result of informed investors' sophisticated trading and not of predatory short-term trading.
Subjects: 
Financial markets
Market structure and pricing
Financial institutions
JEL: 
G20
G14
L1
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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