Insider Trading in the OTC Market

Ji-Chai Lin and John S Howe

Journal of Finance, 1990, vol. 45, issue 4, 1273-84

Abstract: In this paper, the authors examine the profitability of insider trading in firms whose securities trade in the OTC/NASDAQ market. Although the evidence suggests timing and forecasting ability on the part of insiders, high transaction costs (especially bid-ask spreads) appear to eliminate the potential for positive abnormal returns from active trading. By implication, outside investors who mimic the trading of insiders are also precluded from earning abnormal profits. In addition, the authors provide evidence on the determinants of insiders' profits. The data suggest that insiders closer to the firm trade on more valuable information than insiders removed from the firm. Copyright 1990 by American Finance Association.

Date: 1990
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