Information networks: Evidence from illegal insider trading tips

Kenneth Ahern

Journal of Financial Economics, 2017, vol. 125, issue 1, 26-47

Abstract: This paper exploits a novel hand-collected data set to provide a comprehensive analysis of the social relationships that underlie illegal insider trading networks. I find that inside information flows through strong social ties based on family, friends, and geographic proximity. On average, inside tips originate from corporate executives and reach buy-side investors after three links in the network. Inside traders earn prodigious returns of 35% over 21 days, with more central traders earning greater returns, as information conveyed through social networks improves price efficiency. More broadly, this paper provides some of the only direct evidence of person-to-person communication among investors.

Keywords: Illegal insider trading; Information networks; Social networks (search for similar items in EconPapers)
JEL-codes: D83 D85 G14 K42 Z13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (72)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:125:y:2017:i:1:p:26-47

DOI: 10.1016/j.jfineco.2017.03.009

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