Geographic Proximity and Insider Trading: Evidence from COVID-19

51 Pages Posted: 23 Aug 2020 Last revised: 4 Feb 2021

See all articles by Erin Henry

Erin Henry

University of Arkansas - Department of Accounting

George A. Plesko

University of Connecticut School of Business

Caleb Rawson

University of Arkansas - Department of Accounting

Date Written: May 29, 2020

Abstract

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

Henry, Erin and Plesko, George A. and Rawson, Caleb, Geographic Proximity and Insider Trading: Evidence from COVID-19 (May 29, 2020). University of Connecticut School of Business Research Paper No. 21-04, Available at SSRN: https://ssrn.com/abstract=3678121 or http://dx.doi.org/10.2139/ssrn.3678121

Erin Henry

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

George A. Plesko

University of Connecticut School of Business ( email )

School of Business
Storrs, CT 06269-2041
United States
860-486-6421 (Phone)

Caleb Rawson (Contact Author)

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

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