Relative Idiosyncratic Volatility and the Timing of Corporate Insider Trading

56 Pages Posted: 6 Nov 2014 Last revised: 15 Aug 2016

See all articles by Jasmin Gider

Jasmin Gider

Tilburg University - School of Economics and Management

Christian Westheide

University of Vienna - Department of Finance; Goethe University Frankfurt - Research Center SAFE

Date Written: February 24, 2016

Abstract

This paper investigates whether corporate insiders trade when asymmetric information is high, using data on U.S. corporate insider transactions between 1986 and 2012. The key innovation of this paper is our proxy for asymmetric information relivol which measures deviations of idiosyncratic volatility from a firm's normal level. Our findings indicate that relivol positively predicts insider purchases, which indicates that insiders buy shares when their informational advantage is high. However, insiders appear to sell less if relivol is high, which is consistent with existing evidence on sales being driven by alternative, non-information related trading motives such as liquidity or diversification needs. Further, we find that profits are significantly higher when insiders buy during periods of high relivol, but not when they sell shares.

Keywords: insider trading, information asymmetry, idiosyncratic volatility

JEL Classification: G14, G34

Suggested Citation

Gider, Jasmin and Westheide, Christian, Relative Idiosyncratic Volatility and the Timing of Corporate Insider Trading (February 24, 2016). Journal of Corporate Finance, Vol. 39, 2016. Available at SSRN: https://ssrn.com/abstract=2519425 or http://dx.doi.org/10.2139/ssrn.2519425

Jasmin Gider (Contact Author)

Tilburg University - School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Christian Westheide

University of Vienna - Department of Finance ( email )

Bruennerstrasse 72
Vienna, 1210
Austria

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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