The Review of Asset Pricing Studies Vol. 10 No. 3 2020
Do Proxies for Informed Trading Measure Informed Trading? Evidence from Illegal Insider Trades
Abstract
This paper exploits hand-collected data on illegal insider trades to provide new evidence on the ability of a host of standard measures of illiquidity to detect informed trading. Controlling for unobserved cross-sectional and time-series variation, sampling bias, and strategic timing of insider trades, I find that when information is short-lived, only absolute order imbalance and effective spread are statistically and economically robust predictors of illegal insider trading. However, when information is long-lasting, insiders strategically time their trades to avoid illiquidity, and none of the standard measures considered are reliable predictors, including bid-ask spreads, order imbalance, Kyle’s λ, and Amihud illiquidity. (JEL D53D82G12G14K42) Received: March 14, 2019; Editorial decision: February 18, 2020 by Editor Thierry Foucault.
- DOI
- 10.1093/rapstu/raaa004
- Volume
- 10
- Issue
- 3
- Pages
- 397-440
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref