Trading Strategies of Corporate Insiders
68 Pages Posted: 27 Jul 2012 Last revised: 20 Jul 2017
Date Written: January 4, 2017
We test two complementary theories of optimal trading strategies by analyzing transaction pat-terns of corporate insiders: Information-based theories predict that investors trade faster if they compete with others for exploiting the same information. Liquidity-based theories predict the opposite. Our analysis supports the predictions of liquidity-based models: insiders take longer to complete trades when they face competition from other insiders and they trade slower in less liquid markets. Insiders adapt to fluctuations in market liquidity. We identify informed trading using CARs, company news announcements, and insider trading pattern. Our results support the predictions of information-based models for trades classified as informed.
Keywords: Trade splitting, informed trading, block trading, insider trading, liquidity, Sarbanes-Oxley
JEL Classification: G14, G34, G38
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