Stock Prices and the Secondary Dissemination of Information: The Wall Street Journal's “Insider Trading Spotlight”Column

Abstract

In this paper we test whether a secondary dissemination of information affects stock prices. We examine stock price reactions to the publication of the "Insider Trading Spotlight" (ITS) column in the Wall Street Journal (WSJ). Since insider trades reported in the ITS column are initially disclosed to the public when insiders' reports are filed with the Securities and Exchange Commission (SEC), the information contained in the WSJ is a secondary dissemination. Around the WSJ publication day, we find significant abnormal stock performance accompanied by a significant increase in trading volume. Our evidence suggests that a secondary dissemination of information can affect stock prices if the initial public disclosure attracts only limited attention by the market. In addition, we document how insider trading information is conveyed to the market.We thank an anonymous referee and seminar participants at the University of Hawaii and the 1995 Financial Management Association meetings for helpful comments. We also thank Beth Baugh for editorial assistance. 115 116 S. Chang, D.Y. Suk/The Financial Review 33 (1998) 115-128

Insider Trading, News Releases, and Ownership Concentration

“…Shortly afterwards, the information is published in the Wall Street Journal (WSJ) and other publications. Chang and Suk (1998) find that there is a significant share price reaction even after the announcement in the WSJ which suggests that the SEC online report is only read by a small number of investors whereas the WSJ is read by a larger number of investors. 7 This implies that not only is the reporting process in the US slower, but it also takes time for the information contained in the insider trades to be reflected in the share price.…”

“…Chang and Suk (1998) write that trades normally appear in the online report 2 See Pope et al (1990, p.371). 3 In exceptional circumstances where it is the only reasonable course of action available to a director, clearance may be given to the director to sell (but not to purchase) when he would otherwise be prohibited from doing so.…”

“…On the other hand, an insider sale may be less informative if it is made to meet the liquidity needs of the seller. Seyhun (1986), Lin and Howe (1990), and Chang and Suk (1998) report positive abnormal returns on insider purchases for the US. Similarly, several UK studies, such as Gregory, Matatko and Tonks (1997), find positive abnormal returns for the UK over horizons of 6 to 12 months following directors' purchases.…”

Strategic Trading and Trade Reporting by Corporate Insiders

“…This hypothesis is supported by a host of papers documenting that insider trades, and purchases in particular, convey information to the market (e.g., Seyhun (1986) and Chang and Suk (1998) for the US; Fidrmuc et al (2006) and Friederich et al (2002) for the UK). The US and many other countries have adopted regulations that require corporate insiders to report their trades.…”

“…The authors show that information is reflected more rapidly in prices when insiders have to disclose their trades. Several empirical papers (e.g., Chang and Suk (1998), Betzer and Theissen (2009)) have shown that share price reactions occur on both the trading and reporting dates. Thus, without the report the market is unable to infer the full information content of the trade, which implies that market prices are distorted in the period between the trading and reporting dates.…”