The COVID-19 crash provides a unique identification opportunity to study insiders’ informationaladvantages due to its sudden and exogenous nature. We find that the sales of insiders at firms withconnections to China were significantly more profitable during the COVID-19 crisis than the salesof insiders at firms without connections to China. Consistent with greater attentiveness to publicinformation about the COVID-19 pandemic, this result is driven by China connected insidersexecuting larger (smaller) sales in the early (late) COVID-19 period than non-China connectedinsiders. We find our results are driven by trades that are not preplanned under Rule 10b5-1 andare consistent with anticipation of the systematic market effects of COVID-19 on an insider’s firmas opposed to firm-specific effects. Aggregate China-connected insider trades also predict marketreturns during the COVID period. Our study contributes to the insider trading literature byintroducing geographic connection to market-wide information as a source of public informationadvantage and to regulatory efforts to investigate and understand corporate insider behavior related to the COVID-19 pandemic.
Geographic Connection and Insider Trading: Evidence from COVID-19