Information transfers and learning in financial markets: Evidence from short selling around insider sales

43 Pages Posted: 15 Jan 2008 Last revised: 7 Jan 2013

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics

Date Written: November 15, 2011

Abstract

We document significant increases in short positions on days when company insiders sell their firms’ shares. Short selling increases before insider sales are publicly reported and often before insiders finish selling. Furthermore, the magnitude of short selling activity is consistent with short sellers’ knowledge of the insider’s rank (e.g., CEO, CFO, or a lower-ranked manager) and with knowledge of the unobservable size of the insider’s trading position. We show that short sellers’ superior timing is consistent with (i) monitoring of order flow and (ii) obtaining price-relevant information from brokerages that execute insider sales. Some of our results extend to insider purchases.

Keywords: Insider trading; Short selling; Information transfers; Brokerage effect

JEL Classification: G14, G30

Suggested Citation

Chakrabarty, Bidisha and Shkilko, Andriy, Information transfers and learning in financial markets: Evidence from short selling around insider sales (November 15, 2011). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1083795 or http://dx.doi.org/10.2139/ssrn.1083795

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Andriy Shkilko (Contact Author)

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

LH 4050
75 University Ave. W.
Waterloo, Ontario N2L3C5
Canada
519.884.0710 ext. 2462 (Phone)
519.884.0201 (Fax)

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