The Value of a Disclosure of Ambiguous Information – The Case of Insider Trading

Disclosure of insider trading are ambiguous pieces of information, as liquidity traders may not assess whether the trades are motivated by significant privileged information related to the true share value. This paper establishes an algorithm, relying on Bayesian inference that represents the rational value of ambiguous information associated with the disclosure of insider trading. We found that the theoretical value has a significant predictive power for the actual market reaction. The small difference between the actual market reaction and the theoretical derivation (0.9674% vs. 1.328%) does not necessarily imply that the market underestimates the value of this type of information