Title: Evidence of the Contribution of Legal Insider Trading to Market Efficiency
Abstract: Does legal insider trading contribute to market efficiency? Using refinements proposed in the recent microstructure literature, we analyzed the information content of legal insider trading. We used data on 2,110 companies subject to 59,244 aggregated daily insider trades between January 1995 and the end of September 1999. Our main finding is that, even though financial markets do not respond strongly in terms of abnormal returns to insider trading activities, the significant change in price sensitivity to relative order imbalance due to abnormal insider trades reveals that price discovery is hastened on insider trading days.