TY - JOUR
T1 - Does Insider Trading Impair Market Liquidity? Evidence from IPO Lockup Expirations
AU - Cao, Charles
AU - Field, Laura Casares
AU - Hanka, Gordon
PY - 2004/3
Y1 - 2004/3
N2 - We test the hypothesis that insider trading impairs market liquidity by analyzing intraday trades and quotes around 1,497 IPO lockup expirations in the period 1995-1999. We find that, while lockup expirations are associated with considerable insider trading for some IPO firms, they have little effect on effective spreads. By contrast, two other liquidity measures, quote depth and trading activity, improve substantially. In the 23% of lockup expirations where insiders disclose share sales, spreads actually decline. These findings indicate that a large body of well-informed, blockholding insider traders can enter a market from which they had previously been absent, and substantially change trading volume and share price without impairing market liquidity.
AB - We test the hypothesis that insider trading impairs market liquidity by analyzing intraday trades and quotes around 1,497 IPO lockup expirations in the period 1995-1999. We find that, while lockup expirations are associated with considerable insider trading for some IPO firms, they have little effect on effective spreads. By contrast, two other liquidity measures, quote depth and trading activity, improve substantially. In the 23% of lockup expirations where insiders disclose share sales, spreads actually decline. These findings indicate that a large body of well-informed, blockholding insider traders can enter a market from which they had previously been absent, and substantially change trading volume and share price without impairing market liquidity.
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U2 - 10.1017/s0022109000003872
DO - 10.1017/s0022109000003872
M3 - Article
AN - SCOPUS:1842435918
SN - 0022-1090
VL - 39
SP - 25
EP - 46
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 1
ER -