Information Asymmetry and Cross-Sectional Determinants of Insider Trading

55 Pages Posted: 26 Aug 2003

See all articles by Steven J. Huddart

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Bin Ke

National University of Singapore

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

We investigate the relationship between insider trading and candidate measures for the degree of information asymmetry between insiders and other market participants. The coefficient estimates on certain of the candidate measures assume a sign that is inconsistent with the predicted relationship between the measure and the degree of information asymmetry. For those measures, either the measures are poor proxies for asymmetry or models of informed trade are not descriptive. Overall, the median absolute abnormal return over past earnings announcements (MAG_AR) and whether the firm reports R\&D expenditures perform consistently with predictions for measures of information asymmetry in a price-taking theory of informed trade. Insider profits are significantly higher when MAG_AR is greater.

Keywords: Accounting, Disclosure, Informed trade, Returns, Securities regulation

JEL Classification: G15, M41, M45, K22, D82

Suggested Citation

Huddart, Steven J. and Ke, Bin, Information Asymmetry and Cross-Sectional Determinants of Insider Trading (January 2006). Available at SSRN: https://ssrn.com/abstract=426720

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

Bin Ke (Contact Author)

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-53
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

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