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Do Brokers of Insiders Tip Other Clients?

Author

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  • William J. McNally

    (Financial Services Research Centre, Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada)

  • Andriy Shkilko

    (Financial Services Research Centre, Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada)

  • Brian F. Smith

    (Financial Services Research Centre, Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada)

Abstract

We examine trading activity around insider transactions on the Toronto Stock Exchange and find evidence that some traders mimic insider positions. Our unique data set allows us to establish a direct connection between insiders, their brokerages, and the brokerages’ other clients. The findings are consistent with the possibility that some brokerages tip their clients about insider trades. Insiders in our sample have good timing; returns are usually positive (negative) after insider purchases (sales). Insiders’ good timing translates to the mimicking transactions, which appear to be profitable net of trading costs. Evidence consistent with tipping is observed mainly for smaller independent brokerages. This paper was accepted by Brad Barber, finance .

Suggested Citation

  • William J. McNally & Andriy Shkilko & Brian F. Smith, 2017. "Do Brokers of Insiders Tip Other Clients?," Management Science, INFORMS, vol. 63(2), pages 317-332, February.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:2:p:317-332
    DOI: 10.1287/mnsc.2015.2287
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    References listed on IDEAS

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    Cited by:

    1. Sun, Hanwen & Yin, Shuxing, 2017. "Information leakage in family firms: Evidence from short selling around insider sales," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 72-87.
    2. Tinic, Murat & Sensoy, Ahmet & Demir, Muge & Nguyen, Duc Khuong, 2020. "Broker Network Connectivity and the Cross-Section of Expected Stock Returns," MPRA Paper 104719, University Library of Munich, Germany.
    3. Drobyshevsky Sergey & Trunin Pavel & Knobel Alexandr, 2006. "Some Approaches to the Development of the System of Indicators for Monitoring the Financial Stability," Research Paper Series, Gaidar Institute for Economic Policy, issue 103P.
    4. Li, Frank Weikai & Mukherjee, Abhiroop & Sen, Rik, 2021. "Inside brokers," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1096-1118.
    5. 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).

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    Keywords

    insider trading; broker; tipping;
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