Advanced Information, Strategic Trading and Price Reversal: The Impact of Information Technology on Financial Market

Abstract

Abstract: The perfect application of big data and other information technologies has strengthened investors' ability to obtain information, forming the advantage of obtaining advanced information. In this paper, we explore the influence of advanced information on investors' strategic trading behavior and equilibrium prices in light of different investment horizons preferences. The results show that, in the shortterm trading environment, if and only if the accuracy of the advanced information is greater than a certain critical value, the trading intensity of technical traders as for the advanced information is greater than that of the private information, and vice versa. In addition, compared with long-term traders, short-term traders face the risk of price fluctuations in the second period, and they are more cautious in the first period. For private information, the trading intensity is lower than that of long-term traders, while for advanced information, the trading intensity is greater than long-term traders. Further research proves that as the advanced information is incorporated into the price in the first period, the price reverses in the second period. The research conclusions will make theoretical contributions to clarifying the strategic trading mechanism and pricing mechanism under different investment horizons, and will also provide meaningful theoretical guidance for preventing financial risks caused by information technology.

Key words: advanced information, strategic trading, short-term trading, multiple equilibria, rational expectation

Zeng Qingduo, Xu Yang, Chen Binbin, Liu Shancun. Advanced Information, Strategic Trading and Price Reversal: The Impact of Information Technology on Financial Market[J]. Management Review, 2025, 37(5): 43-52.

References

[1] Sims C. A. Implications of Rational Inattention[J]. Journal of Monetary Economics, 2003,50(3):665-690
[2] 巴曙松,王一出. 高频交易对证券市场的影响:一个综述[J]. 证券市场导报, 2019,(7):42-51 Ba S. S., Wang Y. C. The Market Consequences of High Frequency Trading:A Review[J]. Securities Market Herald, 2019, (7):42-51
[3] Dugast J., Foucault T. Data Abundance and Asset Price Informativeness[J]. Journal of Financial Economics, 2018,130(2): 367-391
[4] 田高良,薛宇婷,李星,等. 投资者重视管理者的前瞻性吗?——-基于年报文本分析的经验证据[J]. 管理工程学报, 2023, 37(1):225-236 Tian G. L., Xue Y. T., Li X., et al. Forward-looking Statement and Value of Cash Holding:The Empirical Evidence Based on Text Mining of Annual Report[J]. Journal of Industrial Engineering and Engineering Management, 2023,37(1):225-236
[5] 徐浩峯,高峰,项志杰,等. 信息透明度与机构投资者的周期性交易[J]. 管理科学学报, 2022,25(11):69-84 Xu H. F., Gao F., Xiang Z. J., et al. Information Transparency and Institutional Investor Periodic Trading[J]. Journal of Management Sciences in China, 2022,25(11):69-84
[6] 丁月华,刘维奇. 有限关注、内生性学习与期望收益[J]. 管理评论, 2022,34(6):41-52 Ding Y. H., Liu W. Q. Limited Attention, Endogenous Learning and Expected Return[J]. Management Review, 2022,34(6): 41-52
[7] 曹新伟,曾旭,洪剑峭. 分析师评级调整与提前交易——基于融资融券市场的研究[J]. 管理评论, 2020,32(12):49-60 Cao X. W., Zeng X., Hong J. Q. Trading before Analysts' Recommendation Revisions:An Empirical Research on Margin Trading and Short Selling[J]. Management Review, 2020,32(12):49-60
[8] Mahata A., Bal D., Nurujjaman M. Identification of Short-term and Long-term Time Scales in Stock Markets and Effect of Structural Break[J]. Physica A:Statistical Mechanics and its Applications, 2020,545:123612
[9] Hirshleifer D., Subrahmanyam A., Titman S. Security Analysis and Trading Patterns When Some Investors Receive Information before Others[J]. The Journal of Finance, 1994,49(5):1665-1698
[10] Vo M. T. Strategic Trading When Some Investors Receive Information before Others[J]. International Review of Economics & Finance, 2008,17(2):319-332
[11] 陈彬彬,刘善存. 信息获取时间差异对市场流动性的影响研究——兼论信息技术在证券市场中应用的影响[J]. 管理工程学报, 2022,36(4):76-85 Chen B. B., Liu S. C. The Impact of Difference in Information Acquisition Time on Market Liquidity:Discuss the Impact of Information Technology in Securities Market[J]. Journal of Industrial Engineering and Engineering Management, 2022,36(4):76-85
[12] Christophe S. E., Ferri M. G., Hsieh J. Informed Trading before Analyst Downgrades:Evidence from Short Sellers[J]. Journal of Financial Economics, 2010,95(1):85-106
[13] Harford J., Kecsk??s A., Mansi S. Do Long-term Investors Improve Corporate Decision Making?[J]. Journal of Corporate Finance, 2018,50:424-452
[14] Cespa G., Vives X. The Beauty Contest and Short-term Trading[J]. The Journal of Finance, 2015,70(5):2099-2154
[15] Cremers M., Pareek A. Short-term Trading and Stock Return Anomalies:Momentum, Reversal, and Share Issuance[J]. Review of Finance, 2015,19(4):1649-1701
[16] Vives X. Short-term Investment and the Informational Efficiency of the Market[J]. The Review of Financial Studies, 1995,8(1): 125-160
[17] Du B., Serrano A., Vianna A. Short-term Institutions' Information Advantage and Overvaluation[J]. The North American Journal of Economics and Finance, 2021,55:101299
[18] O'Hara M. High Frequency Market Microstructure[J]. Journal of Financial Economics, 2015,116(2):257-270
[19] 朱菲菲,李惠璇,徐建国,等. 短期羊群行为的影响因素与价格效应——基于高频数据的实证检验[J]. 金融研究, 2019, (7):191-206 Zhu F. F., Li H. X., Xu J. G., et al. Determinants and Pricing Effects of Short-term Herd Behavior:An Empirical Test Based on High-Frequency Data[J]. Journal of Financial Research, 2019,(7):191-206
[20] Chen J., Tang G., Yao J., et al. Investor Attention and Stock Returns[J]. Journal of Financial and Quantitative Analysis, 2022, 57(2):455-484
[21] Cespa G. Short-term Investment and Equilibrium Multiplicity[J]. European Economic Review, 2002,46(9):1645-1670
[22] Campbell J. Y., Kyle A. S. Smart Money, Noise Trading and Stock Price Behaviour[J]. The Review of Economic Studies, 1993, 60(1):1-34
[23] Lou D. A Flow-based Explanation for Return Predictability[J]. The Review of Financial Studies, 2012,25(12):3457-3489
[24] Shin H. S. Risk and Liquidity[M]. Oxford:Oxford University Press, 2010
[25] Bongaerts D., Van Achter M. Competition among Liquidity Providers with Access to High-frequency Trading Technology[J]. Journal of Financial Economics, 2021,140(1):220-249
[26] 徐巍,陈冬华. 自媒体披露的信息作用——来自新浪微博的实证证据[J]. 金融研究, 2016,(3):157-173 Xu W., Chen D. H. Information Effect of'We Media' Disclosure:Evidence from Sina Weibo[J]. Journal of Financial Research, 2016,(3):157-173
[27] 廖理,崔向博,孙琼. 另类数据的信息含量研究——来自电商销售的证据[J]. 管理世界, 2021,37(9):90-104 Liao L., Cui X. B., Sun Q. The Information Content of Alternative Data:Evidence from E-commerce Sales[J]. Journal of Management World, 2021,37(9):90-104
[28] 刘颖,张晴晴,董纪昌. 有限关注视角下的股市流动性反转效应研究[J]. 管理评论, 2020,32(1):13-28 Liu Y., Zhang Q. Q., Dong J. C. Research on the Reversal Effect of Stock Market Liquidity from the Perspective of Investor Attention[J]. Management Review, 2020,32(1):13-28