New Term: Front Running
I subscribe to Scottrade’s “Tomorrow’s News Today. Today’s edition talked about a term I hadn’t heard before called “front running.”
According to wikipedia, front running is defined as
Here’s what Scottrade reported:
Study Finds Front-Running
Short selling spikes before public reports of large sales by a corporate chief executive, probably due to illegal “front running” on inside information, a new academic study concludes.
The study found short sales jumped 13% on average on
days when CEOs sell shares, with an additional 32,000
shares being sold short. Short selling peaks a day before
insider sales by the CEO become public and starts rising
sharply two days beforehand, according to the study, suggesting
“information about the insider sale is leaked in advance.”
The unpublished study, “Do Short Sellers Front-Run Insider
Sales?” examined 2,030 insider sales by CEOs from
January 2005 to May 2007. Increased short selling in
advance of public reports of CEO sales wasn’t concentrated
in any particular month or industry, but was more likely
ahead of larger sales, which typically affect stock prices
more than smaller sales.
It’s amazing to me (but it shouldn’t be) that a market, so perfectly conceived, like one we’ve concocted to trade stocks, can be so perversely manipulated by greedy people.
But, of course, I’ve always been inclined to believe that something like this has happened ever since the first stock was traded; I just didn’t know what it was called (except for illegal, unethical, immoral, and/or greedy).
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