Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO?

47 Pages Posted: 6 Feb 2015 Last revised: 28 Jun 2016

See all articles by Umit Ozmel

Umit Ozmel

Purdue University - Krannert School of Management

Timothy E. Trombley

Illinois State University

M. Deniz Yavuz

Purdue University - Krannert School of Management

Date Written: February 4, 2015

Abstract

We investigate whether access to information prior to an IPO generates a trading advantage after the IPO. We find that limited partners (LPs) of venture capital funds obtain high returns when they invest in newly listed stocks backed by their funds. These returns are not explained by LPs’ differing stock picking abilities, and are higher when LPs’ information advantage over the public is higher. Further, LPs’ access to information eliminates the familiarity bias that they display otherwise. Overall, access to information prior to the IPO results in a trading advantage. These findings contribute to the debate on insider trading regulations.

Keywords: Limited partners, information, investment returns, familiarity bias, venture backed IPOs, insider trading.

JEL Classification: G11, G14, G23, G24

Suggested Citation

Ozmel, Umit and Trombley, Timothy E. and Yavuz, M. Deniz, Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO? (February 4, 2015). Available at SSRN: https://ssrn.com/abstract=2560527 or http://dx.doi.org/10.2139/ssrn.2560527

Umit Ozmel

Purdue University - Krannert School of Management ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Timothy E. Trombley (Contact Author)

Illinois State University ( email )

Normal, IL 61790
United States

HOME PAGE: http://www.timtrombley.com

M. Deniz Yavuz

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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