ABSTRACT
Insiders, that is, managers and members of the board of directors of publicly traded corporations, usually possess more information about their company than do (small) outside shareholders. e main argument in favor of insider trading is that it communicates this superior information to outsiders. For instance, Leland (1992) shows that when insider trading is allowed, share prices incorporate more information, and are higher. However, while an insider purchase conveys positive information about the rm’s prospects, it is less clear what information an insider sale conveys. On the one hand, an insider sale may convey unfavorable information about the rm’s prospects. On the other hand, an insider sale may be less informative if it is made to meet the liquidity needs of the seller.
