The Effects Of Insider Trading On Liquidity

By the complete of non-tradable shares reform and implement of new securities law> & corporation law>, legal insider trade has hugely immerged. At the same time, supervising departments also realized that insider trading may intrigue opportunist activity of insiders which will harm the fair and efficiency of capital market, therefore they put strict supervise on insider trading. Also, the supervising departments released series of regulations and lawsuits which detailed Lock-up Period, informing liability and trading rules, that lowest the negative effect of insiders trading. However, our acknowledge of legal insider trading is limited. What effect has been made to different participators of the stock market by insider trading? How should it be effectively supervised? Before we talk about supervising measures of insider trading, we should first make clear of the specific market influence of it, that is whether or not it did impact profit of the other investors and the capability of stock market. Supervising can only be effective on this basis.This paper selected samples of trades by CEOs, managers and supervisors on stock market on the period of 2008.01.01 to 2010.12.31.By theoretical analysis of information asymmetric theory, using liquidity as factor, calculated factors by high frequency data. We use the multiple linear regression with interactive variables to analyze the effect of insider trading intensity on liquidity, also use 2OLS to estimate the relation between insider trading inter and liquidity。The paper toke spread and depth as factors measuring liquidity, study the relation of stock liquidity of insider trading information revealing day as well as days after and insider trading, found out the insider trading activity did effect liquidity, and the effect is bigger when stock quantity is larger. During analysis, toke in factors which also influence liquidity, such as trading sum, stock price, and Volatility, result shows that the effect is still significant after controlling these factors. Considering of possible relation between insider trading sum and liquidity, the paper set up group of formulas, but the effect was still significant even inherence by strength of insider trading has been eliminated.By the results of empirical analysis, the paper gave advices on increase information quality, enforce company inside management, empower supervising and reform of system, which may be helpful to the effectiveness of stock market.