Paper #999
- Title:
- Firms vs. insiders as traders of last resort
- Authors:
- José M. MarÃn and Antoni Sureda-Gomila
- Date:
- November 2006
- Abstract:
- We explore the role of corporate insiders vs. firms as traders of last resort. We develop a simple model of insider trading in which insiders provide price support, as well as liquidity, in security markets. Consistent with the model predictions we find that in the US markets insiders’ trading activities have a clear impact on return distributions. Furthermore, we provide empirical evidence on insiders transactions and firm transactions affecting returns in a different manner. In particular, while insiders’ transactions (both purchases and sales) have a strong impact on skewness in the short run and to a lesser extent in short run volatility, company repurchases only have a clear impact on volatility, both in the short and the long run. We provide explanations for this asymmetry.
- Keywords:
- Insider trading, liquidity, short-horizon variance, autocorrelation, skewness
- JEL codes:
- G11, G12, G14, G18
- Area of Research:
- Finance and Accounting
Download the paper in PDF format