Abstract
This study investigates insider trading activity and associated net order flows (buyer initiated minus seller initiated trades) during the high price - high volatility period of late 1990s. The results show that insiders of seemingly overpriced technology firms are heavy sellers during the rise of stock prices, and the firms which are sold extensively by insiders have lower stock returns in the correction period. The relation between net order flows and abnormal insider trading activity, on average, is positive and significant; which suggests insider trading helps price discovery. However, this positive relation disappears during this special period. Overall, the evidence supports the model of Abreu and Brunnermeier (2003) by showing that signals from insider trading is not impounded to stock prices during periods when sophisticated investors do not trade against price bubbles.
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