easy · Market Microstructure adverse-selection
A burst of aggressive buying arrives just before favorable public news. A researcher suspects informed trading but also knows the orders could reflect liquidity needs or chance.
What is the soundest interpretation?
- The pattern proves every buyer had illegal private information
- The pattern proves the news caused the earlier trades
- The timing proves the aggressive buyers possessed value-relevant private information and rules out liquidity needs, chance, or other explanations
- The pattern may raise the estimated probability of informed trading but does not prove it
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