Time Varying Liquidity Trading, Private Information and Insider Trading

European Financial Management, Forthcoming

39 Pages Posted: 2 Oct 2010 Last revised: 30 Aug 2012

See all articles by Qin Lei

Qin Lei

University of Michigan at Ann Arbor

Xuewu Wesley Wang

Quinnipiac University

Multiple version iconThere are 2 versions of this paper

Date Written: September 30, 2010

Abstract

This paper investigates insider trading before scheduled versus unscheduled corporate announcements to explore how corporate insiders utilize their private information when the amount of liquidity trading is varying over time in a predictable way. Using a comprehensive insider trading database we show that insiders’ propensity to trade before corporate announcements increases in the amount of liquidity trading available. This pattern is more pronounced before unscheduled announcements than before scheduled ones. We also find that insiders buy (sell) more before announcements with positive (negative) announcement returns. This association is much stronger before unscheduled announcements than before scheduled ones. Consistent with the extant literature that finds insider purchases informative, in our sample insider buys are more profitable before unscheduled announcements than before scheduled ones. Taken together, our empirical results provide direct evidence that insiders strategically time their trades around scheduled and unscheduled announcements.

Keywords: Liquidity Trading, Insider Trading, PIN

JEL Classification: G10, G14

Suggested Citation

Lei, Qin and Wang, Xuewu Wesley, Time Varying Liquidity Trading, Private Information and Insider Trading (September 30, 2010). European Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1685267

Qin Lei

University of Michigan at Ann Arbor ( email )

Ross School of Business
701 Tappan Street
Ann Arbor, MI 48109-1234
United States

HOME PAGE: http://leiq.bus.umich.edu

Xuewu Wesley Wang (Contact Author)

Quinnipiac University ( email )

275 Mt Carmel Ave
Hamden, CT 06518
United States
6179353977 (Phone)

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