Stealth Trading by Corporate Insiders

This paper analyzes stealth trading by corporate insiders in US equity markets. Stealth trading is the practice to break up trades into sequences of smaller trades. We find that stealth trading is pervasive and distinguish two explanations. The first argues that insiders break up trades in order to conceal private information about the fundamental value of the stock, whereas the second holds that insiders act like discretionary liquidity traders who want to reduce the tem-porary price impact from trading large stakes. We find some, but inconsistent evidence for information-based explanations, but strong and unambiguous evidence for liquidity-based ex-planations. These conclusions hold across subsamples for transactions before and after the Sarbanes-Oxley act and for NASDAQ as well as NYSE stocks