Firms vs. insiders as traders of last resort

Jose Marin () and Antoni Sureda-Gomila

No 2007-21, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

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 (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G18 (search for similar items in EconPapers)
Date: 2007-10-28
New Economics Papers: this item is included in nep-mst
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Working Paper: Firms vs. insiders as traders of last resort (2006)
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