Brand Innovation and Informed Trading

After constructing high-frequency measures of informed trading as well as the measure of brand innovation proxied by the number of trademark registrations (TMRs), we first examine how market participants respond to the news about TMRs. The results show that the information on TMRs predicts subsequent stock returns, implying the value-relevance of TMRs. We then provide evidence that investors attempt to capitalize on such information in the financial market. The analyses with the posterior probabilities of informed trading and the directional price impacts suggest that market participants interpret more TMRs as good news, which in turn triggers informed buying. A series of robustness tests confirm that the results are consistent with our main arguments