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Time-Varying Liquidity Trading, Private Information and Insider Trading


  • The authors are grateful to John Doukas (the editor) and an anonymous referee for their insights that greatly strengthened the paper. The authors also thank participants at the FMA 2010 meeting in New York and especially Bonnie Van Ness (the discussant) for their helpful comments and suggestions.


This paper investigates the insider trading before scheduled versus unscheduled corporate announcements to explore how corporate insiders utilise their private information in response to the time-varying liquidity trading. Using a comprehensive insider trading database, we show that: (1) the insider's propensity to trade increases in the amount of liquidity trading before both the scheduled and unscheduled announcements; (2) insiders buy (sell) more before positive (negative) announcements; and (3) insider purchases are more profitable before unscheduled announcements than before scheduled ones. They suggest that insiders time their trades around scheduled and unscheduled announcements to exploit the varying extent of liquidity trading.

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