Private Information Trading and Corporate Governance in Emerging Markets

Abstract

We apply the theoretical framework of Llorente, Michaely, Saar, and Wang (2002) to analyze the relation between daily volume and first-order return autocorrelation for individual stocks in emerging markets. We find strong evidence of return continuation following high volume days, suggesting the presence of private information trading for many emerging market stocks. We discover that private information trading is especially strong around major corporate event dates. In addition, we find stocks that provide better investor protection and information disclosure exhibit less private information trading. These results suggest return autocorrelation and trading volume carry useful information about corporate governance in emerging market.