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Strategic trading by insiders in the presence of institutional investors

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  • Hoang, Lai T.
  • Wee, Marvin
  • Yang, Joey Wenling

Abstract

We examine how competition to trade on information with institutional traders affects insider trading. We find insiders complete their trades quicker when trading on the same side as institutions, and this effect is more pronounced when insiders are more informed. These findings support information-based models, suggesting that insiders accelerate their trading as institutional traders are likely to become privy to the private information and compete with them. We identify two possible channels by which institutional investors acquire private information: when insiders and institutional traders share the same broker, and when firms’ headquarters are in the same city as institutional traders.

Suggested Citation

  • Hoang, Lai T. & Wee, Marvin & Yang, Joey Wenling, 2023. "Strategic trading by insiders in the presence of institutional investors," Journal of Financial Markets, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finmar:v:64:y:2023:i:c:s138641812200091x
    DOI: 10.1016/j.finmar.2022.100802
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    More about this item

    Keywords

    Insider trading; Institutional trading; Information competition; Liquidity competition; Broker channel; Proximity channel;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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