The effects of insider trading on liquidity

Tsz Wan Cheng, Michael Firth, T. Y. Leung, Oliver Rui

Research output: Journal article publicationJournal articleAcademic researchpeer-review

25 Citations (Scopus)

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).
Original languageEnglish
Pages (from-to)467-483
Number of pages17
JournalPacific Basin Finance Journal
Volume14
Issue number5
DOIs
Publication statusPublished - 1 Nov 2006

Keywords

  • Depth
  • Insider trading
  • Liquidity
  • Spread

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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