We identify the broker each corporate insider trades through, and show that analystsand mutual fund managers affiliated with such “inside brokers” retain a substantialinformation advantage on the insider’s firm, even after these trades are disclosed.Affiliated analysts issue 10–20% more accurate earnings forecasts, and affiliated fundstrade the insider’s stock much more profitably than their peers, following insider tradesthrough their brokerage. Our results challenge the prevalent perception that informationasymmetry arising from insider trading is acute only before trade disclosure, andsuggest that brokers facilitating these trades are in a unique position to exploit suchan asymmetry.
Insiders, Brokers, Analysts, Mutual Funds, Information Transmission
Corporate Finance | Management Information Systems
LI, Frank Weikai; MUKHERJEE, Abhiroop; and SEN, Rik.
Inside brokers. (2017). 1-61. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5324
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