Strategic Trading by Insiders in Reaction to Institutions: A Rat-Race Effect

53 Pages Posted: 16 Apr 2021

See all articles by Lai T. Hoang

Lai T. Hoang

The University of Western Australia

Marvin Wee

Australian National University (ANU); Financial Research Network (FIRN)

Joey (Wenling) Yang

The University of Western Australia

Date Written: April 9, 2021

Abstract

We examine how trading by institutional traders affects those by insiders. Using data at the trade level, we find insiders complete their trades faster when institutions trade on the same side in the stock. The effect of institutional activity on insider trading is more pronounced when insiders are more informed and if insider trades are associated with long-lived information. This finding supports the information-based hypothesis where insiders accelerate their trading due to competition with institutional investors for information. We identify two channels, brokerage and proximity, where insiders compete with institutional traders for information. We find the competition is more intense when (1) insiders and institutional investors share the same broker; and (2) institutional investors are local to the firm’s headquarter.

Keywords: Insider trading; Institutional trading; trade sequence; information competition; liquidity

JEL Classification: G10; G14; G23

Suggested Citation

Hoang, Lai T. and Wee, Marvin and Wee, Marvin and Yang, Joey (Wenling), Strategic Trading by Insiders in Reaction to Institutions: A Rat-Race Effect (April 9, 2021). Available at SSRN: https://ssrn.com/abstract=3822943 or http://dx.doi.org/10.2139/ssrn.3822943

Lai T. Hoang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Marvin Wee

Australian National University (ANU) ( email )

The Australian National University
College of Business and Economics
Canberra, 2601
Australia
+61 2 61250416 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Joey (Wenling) Yang

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

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