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Information asymmetry and cross-sectional variation in insider trading


Steven Huddart and Bin Ke

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.

Contemporary Accounting Research Volume 24, Number 1 (Spring 2007) 195-232

JEL Classification: G15 M41 K22

Keywords: Accounting, Disclosure, Securities, Regulation

Download the paper from SSRN.


Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
huddart@psu.edu
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