Intraday Behavior of Stock Prices and Trades Around Insider Trading
Financial Management, Vol. 39, pp. 323-363, 2010
Posted: 24 Apr 2010
Date Written: April 24, 2010
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: Suggested Citation