Do Short Sellers Front-Run Insider Sales?

Abstract:     
We find evidence of significant increases in short sales immediately prior to large insider sales. We examine a number of explanations that the increase in short sales is driven by public information about the firm or about the impending insider sale. The evidence is inconsistent with these explanations, but is consistent with front-running facilitated by non-public information. Information leakage undermines market integrity and can lead to limited market participation and inefficient capital allocation. The results in this paper therefore have implications for the enforcement of insider information regulations and for timely disclosure of short sales information by stock exchanges.

Keywords: Short Selling, Insider Sales, Front Running, Information Leakage

JEL Classifications: G10, G14, G18, G30, M41

Working Paper Series