We investigate the dynamics of informed trading both before and after corporate bankruptcy announcements using high frequency data. Our findings reveal that pre-announcement informed selling attenuates subsequent announcement returns, with this effect being weaker for firms receiving extensive pre-announcement media coverage or adverse news sentiment. We also find that post-announcement informed trading can serve as a predictor of subsequent bankruptcy outcomes. Overall, results are consistent with there being material information leakage, warranting policy efforts to better safeguard less informed investors.
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Dang et al. (2024) studied this question.
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