Insider Trading and Net Order Flows: The Case of Technology Bubble

34 Pages Posted: 17 Feb 2009 Last revised: 16 Sep 2014

Date Written: May 2014

Abstract

This study investigates insider trading activity and associated net order flows (buyer initiated minus seller initiated trades) during the high price - high volatility period of late 1990s. The results show that insiders of seemingly overpriced technology firms are heavy sellers during the rise of stock prices, and the firms which are sold extensively by insiders have lower stock returns in the correction period. The relation between net order flows and abnormal insider trading activity, on average, is positive and significant; which suggests insider trading helps price discovery. However, this positive relation disappears during this special period. Overall, the evidence supports the model of Abreu and Brunnermeier (2003) by showing that signals from insider trading is not impounded to stock prices during periods when sophisticated investors do not trade against price bubbles.

Keywords: Insider Trading, Technology Bubble, Net Order Flow, Market Efficiency

JEL Classification: G11, G14

Suggested Citation

Tartaroglu, Semih, Insider Trading and Net Order Flows: The Case of Technology Bubble (May 2014). Available at SSRN: https://ssrn.com/abstract=1344812 or http://dx.doi.org/10.2139/ssrn.1344812

Semih Tartaroglu (Contact Author)

Wichita State University ( email )

Department of Finance, Real Estate & Decision
Sciences (FREDS)
Wichita, KS 67260-0077
United States
(316) 978 7124 (Phone)

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