Determinants of Insider Trading Windows

74 Pages Posted: 14 May 2021 Last revised: 17 Apr 2023

See all articles by Wayne R. Guay

Wayne R. Guay

University of Pennsylvania - Accounting Department

Shawn Kim

University of California, Berkeley - Haas School of Business

David Tsui

University of Southern California - Marshall School of Business

Date Written: April 11, 2023

Abstract

We use observed insider trades to assess the economic determinants of the enforcement of company-imposed insider trading restrictions. We find that the timing of quarterly allowed trading windows reflects concerns about information asymmetry, the strength of external monitoring, and executives’ liquidity needs. Enforced trading windows constrain optimistic insider trading activity, with insiders generating larger trading profits when boards set trading windows that are abnormally loose. We also identify and explore the enforcement of unscheduled, event-specific “ad hoc blackout windows” by firms engaged in material corporate events. Interestingly, the absence of insider trading in these windows is associated with contemporaneously higher information asymmetry. These periods are then followed by increased trading volume and higher stock returns, suggesting investors may not immediately incorporate all information conveyed by unscheduled trading restrictions.

Keywords: insider trading, blackout periods, corporate governance, information asymmetry, executive compensation

JEL Classification: G14, G34, M41

Suggested Citation

Guay, Wayne R. and Kim, Shawn and Tsui, David, Determinants of Insider Trading Windows (April 11, 2023). Available at SSRN: https://ssrn.com/abstract=3844986 or http://dx.doi.org/10.2139/ssrn.3844986

Wayne R. Guay (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

Shawn Kim

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

David Tsui

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

3660 Trousdale Parkway
Los Angeles, CA 90089
United States

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