Bright Light, Dark Room: Where do Corporate Insiders Trade?

Abstract

In the fragmented equity market landscape, corporate insiders may conceal high-quality information or engage in illegal activities by trading on dark markets. While existing literature extensively covers the timing and methods of insider trading, little attention is given to the specific venues utilized by corporate insiders. We analyze where corporate insiders trade and evaluate the impact of their venue choice on abnormal returns. We find that insiders are more inclined to trade on dark markets when engaging in illegal activities, but less inclined to do so when they are informed. Given insiders' endogenous venue selection, trading on dark markets negatively impacts abnormal returns.

Keywords: Insider trading, market fragmentation, venue choice, abnormal return

JEL Classification: G1, G10, G14