Information asymmetry and cross-sectional variation in insider trading

We investigate the relationship of candidate information asymmetry measures to aspects of insiders' trades. For two of the measures, the median absolute abnormal return over past earnings announcements (MAG_ AR) and whether the firm reports R&D expenditures, associations are consistent with the predictions of a price-taking theory of informed trade. Also, insiders' profits are significantly higher when MAG_AR is greater. For the other measures we consider, associations are inconsistent with the predicted relationships, suggesting that either those measures are poor proxies for information asymmetry or models of informed trade are not descriptive.