How Institutional Investors Gain an Information Advantage: Evidence From Option Backdating

Institutional investors are often viewed as informed traders, and individuals attempting to trade in the same market as institutions are likened to “tourists playing poker with professionals in the smoky backroom of a Las Vegas casino.”[1] So how do institutional investors gain their trading edge? By analyzing data based on public signals? By obtaining privileged information from connections? Or, is it just pure luck?

In our article, “Option Backdating Announcements and Information Advantage of Institutional Investors” (Journal of Accounting, Auditing, and Finance, in press 2018), we attempt to identify the source of institutional investors’ information advantage by … Read more