This study examines (Seyhun and Bradley 1997). This body of research suggests that insiders increase (decrease) their holdings around favorable (unfavorable) announcements of firm-specific information. We extend the research on insider trading behavior by examining the trading activity of insiders around conversion-forcing calls of convertible bonds and convertible preferred stocks. In particular, this study provides additional evidence regarding the nature of information (if any) revealed by calls of convertible securities.Mikkelson (1981), Mais, Moore and Rogers (1989) and others find that announcements of in-the-money convertible security calls are associated with negative equity valuation effects. 1 Explanations offered for this adverse stock price effect can be divided into two broad categories of hypotheses. The first category of explanations hypothesize that conversion forcing calls of convertible securities reveal negative information about the firm's cash flows or prospects for stockholders. Calling convertible bonds may result in lost tax shields that reduce cash flow (Mikkelson 1981(Mikkelson , 1985. Jensen (1986) predicts that calls may increase the agency problem of free cash flow since conversion-forcing calls replace fixed claims (preferred dividends or interest payments) with variable cash flows (common dividends). Harris and Raviv 1985 and Constantinides and Grundy 1987 offer an information-signaling rationale where calls reveal managers' pessimistic expectations concerning the future stock price or dividends of their firm. The negative stock price reaction to calls could also be explained by a wealth transfer from shareholders to bondholders (Mikkelson 1981). 2The second category hypothesizes that the negative stock price reaction to calls is due to short-term liquidity constraints (Mazzeo and Moore 1992). Some convertible security holders may dislike having the newly converted common shares in their portfolios thus conversion forcing calls may result in a temporary imbalance in supply and demand for shares. Anticipating increased selling pressure, dealers lower bid and ask quotes to attract buyers and deter sellers when conversion forcing calls are announced. After the temporary imbalance in supply and demand disappears, stock prices rebound to the pre-call announcement level. Thus Mazzeo and Moore (1992) argue that the down pricing around convertible calls is a temporary liquidity effect unrelated to any information about the firms' prospects. Interestingly, the first (negative information) hypothesis is not mutually exclusive of the second ___________________ Readers with questions or comments should contact the authors via email.