The Timing of Informed Trading and Price Continuations

The primary aim of this study is to attempt to explain the cross-sectional variances in price continuations by investigating the important role of the timing of informed trading. The results of our analyses reveal that when informed traders choose to delay their informed trading, the risk premium required by investors in order to absorb the supply shocks will be gradually reduced over time, thereby leading to price continuations. This mechanism goes some way towards explaining why small-sized stocks and those stocks with relatively low analyst coverage tend to exhibit greater price continuations, as compared to large-size stocks and those with greater analyst coverage.