Both authors are from the Department of Finance, Louisiana State University. We would like to thank K. C. Chen, Maurice Joy, Gary Sanger, participants of the LSU Finance Workshop, and, especially, the co-editor, David Mayers, and an anonymous referee for helpful comments. Remaining errors are our responsibility.
Insider Trading in the OTC Market
Article first published online: 30 APR 2012
1990 The American Finance Association
The Journal of Finance
Volume 45, Issue 4, pages 1273–1284, September 1990
How to Cite
LIN, J.-C. and HOWE, J. S. (1990), Insider Trading in the OTC Market. The Journal of Finance, 45: 1273–1284. doi: 10.1111/j.1540-6261.1990.tb02436.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
In this paper, we 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, we 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.