Trading ahead of barbarians’ arrival at the gate: insider trading on noninside information

This is the authors' abstract. We don't add key points for this paper.

Privately informed about firm fundamentals, corporate insiders detect activism-motivated trades better than other traders. This article solves the model of this novel form of insider trading motivated by noninsider information and presents empirical evidence. Corporate insiders preserve their ownership (restraining from selling or buying more) before activist interventions go public to benefit from price appreciation and to defend their private benefits of control. Surveillance technology facilitates response to predisclosure activist trading, especially when positive information about firm fundamentals is absent, supporting the mechanism that insiders attribute order flows to activist interest when speculation on fundamentals can be ruled out.