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Information Asymmetry and Cross‐sectional Variation in Insider Trading *
Author(s) -
Huddart Steven J.,
Ke Bin
Publication year - 2007
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1506/0277-1110-4434-m627
Subject(s) - insider , state (computer science) , insider trading , citation , management , library science , political science , law , economics , mathematics , algorithm , computer science
This study investigates the relationship between insiders’ trades and a rm’s infor-mation environment. We address the basic question: Are candidate measures for thedegree of information asymmetry between a rm’s managers and other market par-ticipants associated with insiders’ trades in the manner predicted by theories ofinformed trading? Specically, we analyze how six candidate measures of infor-mation asymmetry explain cross-sectional variation in insiders’ trades.Although some insiders’ trades are due to insiders’ liquidity and portfoliorebalancing objectives, a component of insiders’ trades is driven by insiders’ infor-mation advantage over other market participants.