Trading on Long-Term Information

Predatory trading can discourage investors from gathering information and trading on it. However, using 11 years of equity trading data, we do not find evidence that informed investors are being discouraged. They have roughly constant volumes and profits through the sample. They are sophisticated, trading patiently over weeks and timing their trades to achieve negative price impacts, leaving price efficiency unchanged. We identify shorter-term traders and, in contrast to theoretical assumptions, find that they supply liquidity by trading in the opposite direction of the informed. Inefficient prices may come from informed investors' sophisticated trading and not from predatory short-term trading.