An empirical analysis of illegal insider trading
Article Abstract:
Whether insider trading affects stock prices is central to both the current debate over whether insider trading is harmful or pervasive, and to the broader public policy issue of how best to regulate securities markets. Using previously unexplored data on illegal insider trading from the Securities and Exchange Commission, this paper finds that the stock market detects the possibility of informed trading and impounds the information into the stock price. Specifically, the abnormal return on an insider trading day averages 3%, and almost half of the pre-announcement stock price run-up observed before takeovers occurs on insider trading days. Both the amount traded by the insider and additional trade-specific characteristics lead to the market's recognition of the informed trading. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1992
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The reaction of investors and stock prices to insider trading
Article Abstract:
Trading by corporate insiders and the tippees is analyzed in Anheuser-Busch's 1982 tender offer for Campbell Taggart. Court records that identify insider transactions are used to disentangle the individual insider trades from liquidity trades. Consistent with previous studies, insider trading was found to have had a significant impact on the price of Campbell Taggart. However, the impact of informed trading on the market is complicated. Trading volume net of insider purchases rose. Contrary to the broad implications of adverse selection models, Campbell Taggart's liquidity improved when the insiders were active in the market, and the insiders received superior execution for their orders. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1992
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Insider trading in financial signaling models
Article Abstract:
We study the impact of voluntary trade by the manager. We find that, in contrast to standard signaling models, an action is good news for some firms and bad news for others, depending on observable characteristics of the firm, its managers, and their compensation plans. Further, voluntary trade eliminates separating equilibria and thus the possibility of exactly inferring the manager's private information. This may cause the manager to take inefficient actions so as to earn trading profits. Such undesirable behavior can be more effectively constrained by compensation contracts based on phantom shares or nontradeable options instead of large stockholdings. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1992
User Contributions:
Comment about this article or add new information about this topic:
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