Effect of pre-disclosure information leakage by block traders

Abstract

Purpose

This paper aims to investigate pre-disclosure information leakage by block traders and market reactions to disclosures of off-hours block trading compared to off-market trading.

Design/methodology/approach

Stock responses were analyzed based on timely disclosures regarding Korean firms’ decisions to dispose of their own shares to improve their financial structures.

Findings

The results showed that pre-disclosure abnormal returns were generated in off-hours block trading. In contrast, on disclosure days, the returns for off-hours block trading were significantly lower than those for off-market trading. It was consistent with prior studies, indicating that block traders were related to information leakage and caused moral hazard problems.

Originality/value

The comparison between off-hours block trading and off-market trading provides important insights regarding block traders’ behavior. This study’s findings on the leakage of information from block traders indicate the need for firms to exercise caution when using block traders.

Citation

Kim, T.-Y. (2019), "Effect of pre-disclosure information leakage by block traders", Journal of Risk Finance, Vol. 20 No. 5, pp. 470-483. https://doi.org/10.1108/JRF-09-2018-0134