Trading Ahead of Barbarians' Arrival at the Gate: Insider Trading on Non-Inside Information
79 Pages Posted: 30 Jan 2022 Last revised: 17 Nov 2022
Date Written: October 1, 2022
Privately informed about firm fundamentals, corporate insiders detect activism-motivated trades better than other traders. This paper presents empirical evidence and solves the model of this novel form of insider trading motivated by non-insider information. Corporate insiders preserve their ownership (restraining from selling, or even buying more) before activist interventions go public, to benefit from price appreciation and to defend their private benefits of control. Response to real-time (pre-disclosure) activist trading is stronger precisely when positive information about firm fundamentals is absent, supporting the mechanism that insiders attribute order flows to activist interest when speculation on fundamentals could be ruled out.
Keywords: insider trading, activist trading, shareholder activism
JEL Classification: G14,G34
Suggested Citation: Suggested Citation