Private information in trades, R2 , and large stock price movements

We investigate the relations between trading-conveyed private information and stock return distributions. Using high-frequency measures of private information, we find that private information in trades is as-sociated with lower stock return synchronicity. We also find private information in trades is positively associated with stock price crashes and positive stock price jumps. Our results are robust to several spec-ification checks, including the use of alternative private information proxies, various model specifications, and different time periods. Overall, we demonstrate that trading conveyed private information reduces stock return synchronicity and predicts the frequency of crashes and jumps. Our findings can be use-ful for market makers, regulators, and traders, who are interested in firm-specific return variation and extreme stock price movements at high frequencies. (c) 2021 Elsevier B.V. All rights reserved.