Using Insider Trading to Infer the Information Content of Equity-Selling Mechanisms

Posted: 14 Apr 2004

See all articles by YiLin Wu

YiLin Wu

National Tsing Hua University - Department of Quantitative Finance

Date Written: April 2004

Abstract

Extant research finds mixed empirical results regarding whether private placement firms are undervalued. Hertzel and Smith (1993) suggest that private placements are undervalued. On the other hand, Krishnamurthy et al. (2004) and Hertzel et al. (2002) show that, similar to public offering firms, private placement firms experience significant negative post-announcement stock price performance. This paper uses estimated residuals from the insider trade regressions (abnormal insider trading) to measure private information. Results show that the probability of making private placements increases with the abnormal insider purchases and decreases with the abnormal insider sales. This is consistent with the hypothesis that private placement firms are undervalued.

Keywords: Private placement, Public offering

JEL Classification: G39, G32, K22

Suggested Citation

Wu, Yi-Lin, Using Insider Trading to Infer the Information Content of Equity-Selling Mechanisms (April 2004). Available at SSRN: https://ssrn.com/abstract=529802

Yi-Lin Wu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

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