JOURNAL ARTICLE

Liquidity and the strategic value of information.

  • Published In: Review of Finance, 2025, v. 29, n. 1. P. 1 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Kadan, Ohad; Manela, Asaf 3 of 3

Abstract

This article develops and empirically estimates a statistic measuring the value of firm-specific information to strategic informed investors, based on the ratio of fundamental variance to price impact (Kyle's lambda). Extending Kyle (1985), the authors show that this ratio approximates the value of information even with multiple informed traders holding imperfect and potentially correlated signals, bounded tightly between 0.92 and 1 times the ratio. Using high-frequency intraday data for U.S. stocks from 2003 to 2020, they find that the value of information rises sharply during market crises—most notably the 2008 financial crisis and the 2020 Covid-19 pandemic—due to volatility increasing more than illiquidity. Cross-sectionally, the value of information is higher for large, growth, and momentum stocks, driven primarily by their superior liquidity despite lower volatility. The measure offers practical applications for evaluating information sources, analyst compensation, and insider trading penalties, while acknowledging caveats related to risk aversion and the interpretation of price impact.

Additional Information

  • Source:Review of Finance. 2025/01, Vol. 29, Issue 1, p1
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2025
  • ISSN:1572-3097
  • DOI:10.1093/rof/rfae040
  • Accession Number:182369623
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