Insider Trading, Traded Volume and Returns

Several models predict that both market liquidity and trading volume generated by less informed traders do not increase when there is insider trading. Available empirical evidence is mixed and still relatively small, because of the inherent difficulty to identify insider trading events. Our econometric work, based on 19 suspect insider trading events drawn from the non-public file of the Italian supervisory authority, provides further insight on these key implications of stock market models. The second purpose of this paper is to assess whether insider trading changes the distribution of volume and returns in a way that can be used by supervisory authorities in order to detect its presence through statistical methods.