Does Insider Trading Have Information Content in the Bond Market?
JOURNAL OF BANKING AND FINANCE, 1995
Posted: 10 Apr 1995
The study is the first to document that there is significant information content in stock trading by registered corporate insiders for the bond market. We report significant positive price reactions for convertible and straight bonds in response to the Wall Street Journal's Insider Trading Spotlight publication of insider buy transactions and significant negative reactions for insider sell transactions. The stock market response to the publication of the insider transactions, although weaker than bond market reaction, is also found to be significant suggest that bond market participants extract the quality of the insider trading signal by observing factors, such as the dollar volume of the trade, the percentage change in the holding of the insider, and the insider's position in the firm. Lower- rated (riskier) bonds are found to be more sensitive to the information than higher-rated issues. The empirical evidence presented in the paper suggest that the absence of any reporting requirement for insider bond transactions may create an enhanced opportunity for the insiders to exploit private information to expropriate wealth from uninformed bond traders.(Recently, the Wall Street Journal carried an article about this paper on February 8, 1995 on page C1.)
JEL Classification: G14, G38, K22, K42
Suggested Citation: Suggested Citation