Indirect Insider Trading
64 Pages Posted: 19 Nov 2018 Last revised: 29 Apr 2020
Date Written: April 25, 2020
Insiders must disclose indirect trades made through accounts they control, including family, trust, retirement, and foundation accounts. Trades made in these indirect accounts are more profitable than direct trades in the insider’s own account. In addition, indirect trades better predict earnings surprises and large price changes, and are associated with insiders at firms that have high information asymmetry. Indirect trades are also associated with opportunistic insiders who make non-routine trades, or who trade profitably before earnings announcements, or have a short investment horizon. Insiders are also less likely to trade through indirect accounts following periods of intense regulatory scrutiny.
Keywords: Insider trading, informed trading, information asymmetry, opportunism, trusts, retirement accounts, foundations, family networks
JEL Classification: G12, G14, G18
Suggested Citation: Suggested Citation