DOES INSIDER TRADING HAVE INFORMATION-CONTENT FOR THE BOND MARKET

This study documents that there is significant information content in stock trading by registered corporate insiders for the bond market. We report significant positive price reactions for convertible and strai ght bonds in response to the Wall Street Journal's Insider Trading Spo tlight publication of insider buy transactions and significant negativ e reactions for insider sell transactions. The stock market response t o the publication of the insider transactions, although weaker than th e bond market reaction, is also found to be significant. Cross-section al results suggest that bond market participants extract the quality o f the insider-trading signal by observing factors such as the dollar v olume of the trade, the percentage change in the holding of the inside r, and the insider's position in the firm. Lower-rated (riskier) bonds are found to be more sensitive to the information than higher-rated i ssues. The empirical evidence presented in this paper suggests that th e absence of any reporting requirement for insider bond transactions m ay create an enhanced opportunity for the insiders to exploit private information to expropriate wealth from uninformed bond traders.