Abstract
<p class="MsoBlockText" style="margin: 0in 0.6in 0pt 0.5in; mso-pagination: none;"><span style="font-style: normal; font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This study examines the relationship between insider trading and market liquidity (spread and depth) of NASDAQ-100 stocks.<span style="mso-spacerun: yes;">&nbsp; </span>Tests on an intraday sample of sell trades show no evidence of cross-sectional association between the width of the spread and insider trading, but detect some widening of the spread after the fact.<span style="mso-spacerun: yes;">&nbsp; </span>Overall, our results provide mixed evidence on the ability of NASDAQ dealers to unravel informed order flow and adjust spreads accordingly. <span style="mso-spacerun: yes;">&nbsp;</span>Their short-term behavior suggests an inability to detect insider trading and widen spreads, but their behavior over time suggests that dealers may attempt to recover what they apparently lose at a given point and time. </span></span></p>
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