Abstract

http://ssrn.com/abstract=90370
 
 

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Insider Trading and the Bid-Ask Spread


Charlie Charoenwong


Nanyang Technological University (NTU)

Kee H. Chung


State University of New York at Buffalo - School of Management


Financial Review, August 1998

Abstract:     
This study examines the intertemporal and cross-sectional association between the bid-ask spread and insider trading. Empirical results from the cross-sectional regression analysis reveal that market makers establish larger spreads for stocks with a greater extent of insider trading. The time-series regression analysis, however, finds no evidence of spread changes on insider trading days. These results suggest that although market makers may not be able to detect insider trading when it occurs, they protect themselves by maintaining larger spreads for stocks with a greater tendency of insider trading. The results also reveal that market makers establish larger spreads when there are unusually large transactions. In addition, this study finds that spreads are positively associated with risk and negatively with trading volume, the number of exchange listings, share price, and firm size.

Number of Pages in PDF File: 20

JEL Classification: G12, G14

Accepted Paper Series


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Date posted: July 20, 1998 ; Last revised: December 16, 2009

Suggested Citation

Charoenwong, Charlie and Chung, Kee H., Insider Trading and the Bid-Ask Spread. Financial Review, August 1998. Available at SSRN: http://ssrn.com/abstract=90370

Contact Information

Charlie Charoenwong
Nanyang Technological University (NTU) ( email )
Nanyang Business School, BF Division
S3-01c-104
Singapore, 639798
Singapore
+65 6790 4799 (Phone)
+65 6791 3697 (Fax)
Kee H. Chung (Contact Author)
State University of New York at Buffalo - School of Management ( email )
Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)
HOME PAGE: http://mgt.buffalo.edu/home/faculty/academic/finance/faculty/keechung
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References:  8
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