University of Oulu

Kallunki, J., Kallunki, J.-P., Nilsson, H., & Puhakka, M. (2018). Do an insider’s wealth and income matter in the decision to engage in insider trading? Journal of Financial Economics, 130(1), 135–165.

Do an insider’s wealth and income matter in the decision to engage in insider trading?

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Author: Kallunki, Jenni1; Kallunki, Juha-Pekka1,2,3; Nilsson, Henrik3;
Organizations: 1Oulu Business School, University of Oulu, Pentti Kaiteran katu 1, P.O. Box 8000, FIN-90014 University of Oulu, Finland
2Aalto University School of Business, Finland
3Stockholm School of Economics, Sveavägen 65, P.O Box 6501, SE-11383 Stockholm, Sweden
Format: article
Version: accepted version
Access: open
Online Access: PDF Full Text (PDF, 1.4 MB)
Persistent link:
Language: English
Published: Elsevier, 2018
Publish Date: 2021-08-26


We explore why insiders engage in informed trading, given the surprisingly small average insider returns reported in the literature and the potential costs involved. We begin by proposing a model of an insider’s decision to engage in insider trading. We then empirically test the model’s predictions using archival data of corporate insiders in Sweden. Consistent with the model, we find that less wealthy insiders are more likely to time their insider selling, and to sell in greater magnitudes, prior to abnormal price declines than wealthy insiders. We also find that less wealthy insiders with lower risk aversion as measured by their criminal behavior are particularly prone to timing their selling to avoid price declines.

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Series: Journal of financial economics
ISSN: 0304-405X
ISSN-E: 1879-2774
ISSN-L: 0304-405X
Volume: 130
Issue: 1
Pages: 135 - 165
DOI: 10.1016/j.jfineco.2018.06.005
Type of Publication: A1 Journal article – refereed
Field of Science: 512 Business and management
Funding: We acknowledge Euroclear Sweden, Finansinspektionen, Swedish Tax Authorities,and Swedish Research Councilfor providing the requisite data, as well as NASDAQ OMX Nordic Foundation, Vetenskapsrådet,Handelsbanken Research Foundation, Finnish Savings Banks Group Research Foundation, Marcus Wallenberg Research Foundation, OP Group Research Foundation, Tauno Tönning Foundation, Suomen Arvopaperimarkkinoiden Edistämissäätiö, Finnish Cultural Foundation and Academy of Finland [Project #243017121] for financial support.
Copyright information: © 2018. Elsevier B.V. This manuscript version is made available under the CC-BY-NC-ND 4.0 license