Stealth Trading by Corporate Insiders

58 Pages Posted: 21 Nov 2009

See all articles by Olga Klein

Olga Klein

University of Warwick - Warwick Business School

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Christoph Schneider

Tilburg University - Department of Finance

Date Written: November 19, 2009

Abstract

This paper analyzes stealth trading by corporate insiders in US equity markets. Stealth trading is the practice to break up trades into sequences of smaller trades. We find that stealth trading is pervasive and distinguish two explanations. The first argues that insiders break up trades in order to conceal private information about the fundamental value of the stock, whereas the second holds that insiders act like discretionary liquidity traders who want to reduce the tem-porary price impact from trading large stakes. We find some, but inconsistent evidence for information-based explanations, but strong and unambiguous evidence for liquidity-based ex-planations. These conclusions hold across subsamples for transactions before and after the Sarbanes-Oxley act and for NASDAQ as well as NYSE stocks.

Keywords: Stealth Trading, Insider Trading, Sarbanes-Oxley

JEL Classification: G14, G34, G38

Suggested Citation

Klein, Olga and Maug, Ernst G. and Schneider, Christoph, Stealth Trading by Corporate Insiders (November 19, 2009). Available at SSRN: https://ssrn.com/abstract=1509607 or http://dx.doi.org/10.2139/ssrn.1509607

Olga Klein

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Ernst G. Maug (Contact Author)

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Christoph Schneider

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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