Do Proxies for Informed Trading Measure Informed Trading? Evidence from Illegal Insider Trades

65 Pages Posted: 9 Feb 2018 Last revised: 21 Apr 2018

See all articles by Kenneth R. Ahern

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 23, 2018

Abstract

This paper exploits hand-collected data on illegal insider trades to provide new evidence of the ability of standard measures of illiquidity to detect informed trading. Controlling for unobserved cross-sectional and time-series variation, sampling bias, and strategic timing of insider trades, I find that when information is short-lived, absolute order imbalance and the autocorrelation of order flows are statistically and economically robust predictors of insider trading. However, when information is long-lasting, insiders strategically time their trades to avoid illiquidity and none of the measures I consider are reliable predictors of insider trading, including bid-ask spreads, Kyle's $\lambda$, and Amihud illiquidity.

Keywords: Insider Trading, Asymmetric Information, Liquidity, Price Impact, Information Networks

JEL Classification: D53, D83, D85, G12, G14, K42

Suggested Citation

Ahern, Kenneth Robinson, Do Proxies for Informed Trading Measure Informed Trading? Evidence from Illegal Insider Trades (January 23, 2018). Available at SSRN: https://ssrn.com/abstract=3113869 or http://dx.doi.org/10.2139/ssrn.3113869

Kenneth Robinson Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
283
Abstract Views
1,221
rank
103,795
PlumX Metrics