Intraday Behavior of Stock Prices and Trades Around Insider Trading

Financial Management, Vol. 39, pp. 323-363, 2010

Posted: 24 Apr 2010

See all articles by A. Can Inci

A. Can Inci

Bryant University

Biao Lu

University of Michigan at Ann Arbor

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Date Written: April 24, 2010

Abstract

Our evidence indicates that insiders’ trades provide significant new information to market participants and they are incorporated more fully in stock prices as compared to non-insiders’ trades. We find that market professionals do not front-run insiders’ trades. Both insiders’ purchases and sales result in significant contemporaneous and subsequent price impact, while sales by large shareholders result in a contemporaneous stock price decline that is subsequently reversed. The arrival of insider purchases reverse the prevailing negative order imbalances from third party trades and lead to piggy-backing by market professionals resulting in subsequent market purchase orders as well as stock price increases.

Keywords: Informed Trading, Information Incorporation, Market Microstructure, Order Imbalance, Bid-Ask Quotes

JEL Classification: D82, G14

Suggested Citation

Inci, Ahmet Can and Lu, Biao and Seyhun, H. Nejat, Intraday Behavior of Stock Prices and Trades Around Insider Trading (April 24, 2010). Financial Management, Vol. 39, pp. 323-363, 2010, Available at SSRN: https://ssrn.com/abstract=1595082

Ahmet Can Inci (Contact Author)

Bryant University ( email )

1150 Douglas Pike
Smithfield, RI 02917
United States

Biao Lu

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

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