Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 7, 2009 erstellt
Description:
Mutual funds experiencing large outflows (inflows) tend to decrease (expand) existing positions, creating downward (upward) price pressure in the stocks held in common by them (Coval and Stafford 2007). This study shows that corporate insiders exploit the resulting mispricing by buying (selling) their company's stock if it is subject to such fire sales (purchases) by funds. This finding is robust to controlling for the overall mutual fund trading of the stock driven by factors other than extreme capital flows and other previously identified determinants of insider trades. Furthermore, this relation between mutual fund forced trading and insider trading is more pronounced for smaller and less liquid stocks. We also show that influencing the timing of option grants is another channel through which insiders can exploit this type of mispricing in that the likelihood of option grants is greater for stocks that are under mutual fund fire sales. Finally, we show that both the insider trading and the option granting activities help speed up the price correction process because they significantly reduce the return reversals following mutual fund flow-driven trades through both direct liquidity provision and their signaling effect.Overall, this study illustrates that insiders enhance personal benefits by trading on their personal account and influencing the timing of option grants in response to flow-driven fund trading. Moreover, these activities could contribute towards improving the informational efficiency of stock price