Readers know how I like to comment on some of the stranger aspects of our field! I thought I had found another strange but true research paper when I was at the Vic Bernard Memorial Conference at Michigan earlier this week!
The paper involved insider trading based on information advanatages based on milli- seconds! Wow I thought, we are really grasping at straws here. We started with annual data, went to quarterly data, then got to interday trades and now we are looking at milli-seconds!
Well boy was I wrong and I am the first to admit it! It turns out that the informational advantage was created by an unlevel playing field due to the SEC not policing the timing of the release of insider trading data. Huge profits were being made in those milli- seconds between certain vendors getting this data and general public release. As this involved profits on the long side it meant real losses to those selling shares!
So if we believe that one of the reasons we do research has a public interest component to it, this curiosity driven research that did not set out to find this, But it lead to an overhaul of how such information is released by the SEC. So the next time someone critiques capital markets researchers as going after too small potatoes ( as I have done) think about this one! As I have said many times you never know where curiosity driven basic accounting research will go.
For the full details of the paper look at Doug skinner’s and co- authors paper on ssrn