Strategic trading by insiders in the presence of institutional investors

Key researcher

• Trung Lai Hoang
• M Wee
• JW Yang

Description

We examine how competition to trade information with institutional traders affects insider trading. We find insiders complete their trades quicker when trading on the same side as institutions, and this effect is more pronounced when insiders are more informed. These findings support information-based models, suggesting that insiders accelerate their trading as institutional traders are likely to become privy to private information and compete with them. We identify two possible channels institutional investors acquire private information:

• When insiders and institutional traders share the same broker and;
• When firms’ headquarters are in the same city as institutional traders.