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Insider trade clustering and large variations in stock prices: evidence from the Korean market

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  • Soon Hong Park
  • Byungkwon Lim

Abstract

This paper examines whether insider trade clustering is associated with large stock return variations (i.e. crash or jump risk) in Korea. To investigate private information of insider trade clustering, we separate insider trade clustering into sale clusters and purchase clusters and then document whether trading behavior of insider sale (purchase) clusters is related to the likelihood of a crash (jump). We find that insider sale clusters which occurred over the past month of a crash are strongly related to the information flowed over a short period of time. However, we find that insider purchase clusters are less associated with the likelihood of a jump. Our results provide empirical evidence that insiders share negative information and insider sale clusters contain robust short-lived information. Overall, our findings suggest that insider trade clustering, in particular insider sale clusters, results from agency problems.

Suggested Citation

  • Soon Hong Park & Byungkwon Lim, 2023. "Insider trade clustering and large variations in stock prices: evidence from the Korean market," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 30(5), pages 1368-1389, September.
    • Handle: RePEc:taf:raaexx:v:30:y:2023:i:5:p:1368-1389
    DOI: 10.1080/16081625.2021.1915166
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