We examine the trading behavior of particularly intensive traders, those who contribute the most to daily trading volume, and provide new evidence that is consistent with the presence of informational advantages. Using a unique Chinese data set of the most active daily market participants for each stock, we demonstrate that intensive traders’ buying (selling) predicts large positive (negative) abnormal returns, both unconditionally and, in particular, around key, value-relevant announcements. An advantage of our data is that we can also directly identify several plausible channels through which such an informational advantage could arise. Specifically, the abnormal returns are largest (in absolute terms) following announcements in the presence of intensive pre-event traders who share the same geographic location as the firms in which they trade, and these effects are the most pronounced for stocks with the lowest analyst coverage or the smallest capitalizations. We also find that particularly active traders located near relevant counterparties in an M&A transaction, a new bank loan facility, or a key political change also exhibit informational advantages. Finally, we provide empirical evidence suggesting that the main component of the informational advantage we document reflects a lower information acquisition cost.
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