Geographic Proximity and Insider Trading: Evidence from COVID-19
51 Pages Posted: 23 Aug 2020 Last revised: 4 Feb 2021
Date Written: May 29, 2020
We examine the ability of insiders of firms with operational connections to China to anticipate the COVID-19 stock market crash. The COVID-19 crash provides a unique identification opportunity to study insiders’ informational advantages due to its sudden and historic nature. We find that China insiders sold more (less) stock in the early (late) COVID-19 period than non-China insiders consistent with greater attentiveness to public information about the COVID-19 pandemic arising from their geographic proximity to China. Further, these results are driven by non-preplanned trades and are consistent with their anticipation of the systematic market effects of COVID-19 on their firm. These results contribute to the insider trading literature, which has otherwise found little evidence that insider sales precede major stock market declines. Our results also extend the literature by documenting a geographic component to the information advantages of insiders.
Keywords: Insider trading, China operations, pandemic, COVID-19, Coronavirus
JEL Classification: G14, G01, G30, D80
Suggested Citation: Suggested Citation