Dr Kenneth Ahern, University of Southern California
This paper exploits a novel hand-collected data set to provide a comprehensive analysis of the social relationships that underlie illegal insider trading networks. I find that inside information flows through strong social ties based on family, friends, geographic proximity, and ancestry. On average, inside tips originate from corporate executives and reach buy-side investors after three links in the network. Inside traders earn prodigious returns of 35 per cent over 21 days, with traders farther from the original source earning lower returns, but higher dollar gains. More broadly, this paper provides some of the only evidence on information networks that employs direct observations of person-to-person communication.
Kenneth Ahern studies mergers, corporate governance, and the impact of psychology on economic outcomes. His research has been published in journals that include the Quarterly Journal of Economics, Journal of Finance, and Journal of Financial Economics, and has been cited in both the popular press and legislative hearings around the world. He received the Best Paper Award at the Napa Conference on Financial Markets in 2011 and before joining USC, was on the faculty of the Ross School of Business at the University of Michigan.