Quasi-Indexer Ownership and Insider Trading: Evidence from Russell Index Reconstitutions

55 Pages Posted: 24 Sep 2018 Last revised: 18 Apr 2021

See all articles by Stephen A. Hillegeist

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy

Liwei Weng

The Hong Kong Polytechnic University

Multiple version iconThere are 2 versions of this paper

Date Written: April 5, 2021

Abstract

The prior literature on the association between institutional ownership and insider trading has produced a mixed set of results. These results are difficult to interpret because the association between them is likely endogenous and prior studies have not employed effective identification strategies to address this issue. In this study, we examine the effects of quasi-indexer institutional ownership on insider trading using the plausibly exogenous discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, we find higher quasi-indexer ownership leads to less insider trading (both buys and sells) and less profitable sell trades. The effects for sells are concentrated among insider trades that, ex ante, are more likely to be based on private information. Our evidence on the profitability of buys is mixed. In addition, we find firms with higher quasi-indexer ownership are more likely to have and/or more strictly enforce blackout policies.

Keywords: quasi-indexers, insider trading, blackout policies, causal effect, regression discontinuity

JEL Classification: G14, G23, G34, D82

Suggested Citation

Hillegeist, Stephen A. and Weng, Liwei, Quasi-Indexer Ownership and Insider Trading: Evidence from Russell Index Reconstitutions (April 5, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3244627 or http://dx.doi.org/10.2139/ssrn.3244627

Stephen A. Hillegeist (Contact Author)

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy ( email )

Tempe, AZ 85287-3706
United States
480-965-6614 (Phone)

Liwei Weng

The Hong Kong Polytechnic University ( email )

School of Accounting and Finance
M701, Li Ka Shing Tower
Hong Kong
China
+852 2766-7053 (Phone)

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