Do Brokers of Insiders Tip Other Clients?
Management Science, 2017
45 Pages Posted: 8 Mar 2018
Date Written: June 1, 2015
We examine trading activity around insider transactions on the Toronto Stock Exchange and find evidence that some traders mimic insider positions. Our unique dataset allows us to establish a direct connection between insiders, their brokerages, and the brokerages’ other clients. The findings are consistent with the possibility that some brokerages tip their clients about insider trades. Insiders in our sample have good timing; returns are usually positive (negative) after insider purchases (sales). Insiders’ good timing translates to the mimicking transactions, which appear to be profitable net of trading costs. Evidence consistent with tipping is observed mainly for smaller independent brokerages.
Keywords: Insider trading, Tipping, Brokerages
JEL Classification: G14
Suggested Citation: Suggested Citation