Time Varying Liquidity Trading, Private Information and Insider Trading

This paper investigates insider trading before scheduled versus unscheduled corporate announcements to explore how corporate insiders utilize their private information when the amount of liquidity trading is varying over time in a predictable way. Using a comprehensive insider trading database we show that insiders' propensity to trade before corporate announcements increases in the amount of liquidity trading available. This pattern is more pronounced before unscheduled announcements than before scheduled ones. We also find that insiders buy (sell) more before announcements with positive (negative) announcement returns. This association is much stronger before unscheduled announcements than before scheduled ones. Consistent with the extant literature that finds insider purchases informative, in our sample insider buys are more profitable before unscheduled announcements than before scheduled ones. Taken together, our empirical results provide direct evidence that insiders strategically time their trades around scheduled and unscheduled announcements