TY - JOUR
T1 - Do an insider's wealth and income matter in the decision to engage in insider trading?
AU - Kallunki, Jenni
AU - Kallunki, Juha-Pekka
AU - Nilsson, Henrik
AU - Puhakka, Mikko
PY - 2018/10
Y1 - 2018/10
N2 - We explore why insiders engage in informed trading, given the surprisingly small average insider returns reported in the literature and the potential costs involved. We begin by proposing a model of an insider's decision to engage in insider trading. We then empirically test the model's predictions using archival data of corporate insiders in Sweden. Consistent with the model, we find that less wealthy insiders are more likely to time their insider selling, and to sell in greater magnitudes, prior to abnormal price declines than wealthy insiders. We also find that less wealthy insiders with lower risk aversion as measured by their criminal behavior are particularly prone to timing their selling to avoid price declines.
AB - We explore why insiders engage in informed trading, given the surprisingly small average insider returns reported in the literature and the potential costs involved. We begin by proposing a model of an insider's decision to engage in insider trading. We then empirically test the model's predictions using archival data of corporate insiders in Sweden. Consistent with the model, we find that less wealthy insiders are more likely to time their insider selling, and to sell in greater magnitudes, prior to abnormal price declines than wealthy insiders. We also find that less wealthy insiders with lower risk aversion as measured by their criminal behavior are particularly prone to timing their selling to avoid price declines.
KW - Insider trading
KW - Wealth, Income
UR - http://www.scopus.com/inward/record.url?scp=85049347139&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2018.06.005
DO - 10.1016/j.jfineco.2018.06.005
M3 - Article
AN - SCOPUS:85049347139
SN - 0304-405X
VL - 130
SP - 135
EP - 165
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 1
ER -