The Effects of Insider Trading on Liquidity

31 Pages Posted: 8 Feb 2006

See all articles by Louis T. W. Cheng

Louis T. W. Cheng

The Hang Seng University of Hong Kong - Department of Economics and Finance

Michael Firth

Lingnan University - Department of Finance and Insurance

Tak Yan Leung

City University of Hong Kong (CityU) - Department of Accountancy

Oliver M. Rui

China Europe International Business School (CEIBS); affiliation not provided to SSRN

Date Written: May 2005

Abstract

This study examines the impacts of directors' dealings on firm liquidity. Consistent with the information asymmetry hypothesis, spread widens and depth falls on insider trading days as compared to non-insider trading days. This result suggests that increased share trading by insiders impairs liquidity. In addition, the spread (depth) measures are positively (negatively) related to how heavily the shares are transacted by informed traders; that is, the greater the number of shares traded by the directors, the wider (narrower) the spread (depth).

Keywords: insider trading, liquidity

JEL Classification: G10, G18

Suggested Citation

Cheng, Louis T. W. and Firth, Michael and Leung, Tak Yan and Rui, Oliver M. and Rui, Oliver M., The Effects of Insider Trading on Liquidity (May 2005). Available at SSRN: https://ssrn.com/abstract=881293 or http://dx.doi.org/10.2139/ssrn.881293

Louis T. W. Cheng

The Hang Seng University of Hong Kong - Department of Economics and Finance ( email )

Hang Shin Link
Siu Lek Yuen
Shatin
United States

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Tak Yan Leung

City University of Hong Kong (CityU) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

affiliation not provided to SSRN

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