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Does Insider Trading Really Move Stock Prices?

Sugato Chakravarty and John J. McConnell
The Journal of Financial and Quantitative Analysis
Vol. 34, No. 2 (Jun., 1999), pp. 191-209
DOI: 10.2307/2676278
Stable URL: http://www.jstor.org/stable/2676278
Page Count: 19
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Does Insider Trading Really Move Stock Prices?
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Abstract

Prior studies have reported a positive correlation between insider trading and stock price changes implying that insider (i.e., informed) trades affect price discovery differently than non-insider (i.e., uninformed) trades. Based on these results, various scholars have argued for the legalization of insider trading to facilitate rapid price discovery. We analyze the trading activity of a confessed inside trader, Ivan Boesky, in Carnation's stock just prior to Nestle's 1984 acquisition of Carnation, and find that our tests are unable to distinguish the price effect of Boesky's (i.e., informed) purchases of Carnation's stock from the effect of non-insider (i.e., uninformed) purchases. Our conclusion survives extensive robustness tests and has methodological and public policy implications.

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