Information Asymmetry and Cross-Sectional Determinants of Insider Trading
55 Pages Posted: 26 Aug 2003
Date Written: January 2006
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: Suggested Citation