The People in Your Neighborhood: Evidence of Local Information Leakage Around Corporate Headquarters When Insiders Trade

Abstract

This study adds to the literature on the existence of information asymmetries in financial markets by investigating whether information leakage occurs in the local geographic area surrounding corporate headquarters at the time of nonpublic corporate events. On days when a corporation’s headquarters city is the top location for Google searches for company-specific financial information, we find that insider selling is positively associated with the volume of Google search. This result is consistent with information leakage in close proximity to corporate headquarters before news of insider selling is public. In addition, we find that insider selling is negatively associated with Google search volume when the top search location is away from corporate headquarters, consistent with insiders avoiding selling shares around public information events. We also find more negative future abnormal returns when local information search is high at the time of insider selling. Collectively, our results provide evidence consistent with a local information advantage near corporate headquarters when insiders sell their shares.

Keywords: Insider trading, information search, information leakage, Google Trends

JEL Classification: G14, G30, D82, D83, K22, M52