Study Finds U.S. Insiders to China News Sold Stock in Early Stages of Pandemic

Caleb Rawson, University of Arkansas
Photo by University of Arkansas

Caleb Rawson, University of Arkansas

A new study of stock sales by U.S. executives with corporate ties to China indicates that corporate insiders sold stock in their companies during the earliest stages of the coronavirus outbreak in China, weeks before the virus spread to other countries and was recognized as a pandemic. The worldwide spread of COVID-19 eventually caused stock markets to crash.

The insiders, defined as executives of U.S. firms with production or supply-chain activities in China, were geographically proximate to the outbreak and therefore more attuned to its impact, researchers found. Stock sales appeared to be timed to preempt the effects of an anticipated decline in the value of firms due to the pandemic.

“Though the market as a whole was slow to respond to the coronavirus outbreak, insiders of firms with production or supply-chain activities in China were better able to incorporate and act upon information related to the COVID-19 outbreak,” said Caleb Rawson, assistant professor of accounting in the Sam M. Walton College of Business. “These insiders did this ahead of other equity market participants, the non-China insiders. Ultimately, the move allowed stock trades by the China insiders to be significantly more profitable than non-China insiders during the COVID-19 period.”

Rawson and colleagues Erin Henry, also an assistant professor of accounting in the Walton College, and George Plesko, associate professor at the University of Connecticut School of Business, wanted to add to the burgeoning literature on the economic impact of the COVID-19 pandemic. Their research found that China insiders, because of their geographic proximity to the initial outbreak, were more attentive and better understood the implications of news being reported by media or publicly disclosed by their own firms.

The researchers compared the volume of insider sales and raw stock returns during two periods:

  • The pre-COVID-19 period from Jan. 1, 2018, to Jan. 18, 2020.
  • The early stages of the COVID-19 crisis from Jan. 19, 2020, to April 30, 2020.

They found that sales and returns by insiders with and without corporate geographic connection to China during the pre-COVID-19 period were similar.

During the COVID-19 period, however, stock sale patterns between these two groups diverged. The non-China insiders appeared to sell stock only after their firm experienced an initial stock price decline, while stock sales of China insiders preceded initial market declines due to the pandemic.

The researchers emphasized that the China insiders acted on public information. They found nothing to suggest that this group possessed or traded on non-public information about COVID-19, which would have been a violation of the Securities and Exchange Acts of 1933 and 1934.

Compared to corporate insiders without geographic ties to China, China insiders sold stock more frequently and earlier during the COVID-19 period. This activity likely attributed to significantly larger increases in profitability. China insiders avoided approximately $300 million in aggregate losses by selling stock before the initial stages of the pandemic-induced market decline, the researchers found.

“Our study suggests that corporate insiders with connections to China were not only better attuned to the publicly available information about COVID-19 but were able to profitably trade on their anticipation of its market effects,” Rawson said.

Though the coronavirus surfaced in Wuhan, China, in late December of 2019, it was not deemed a pandemic until March of 2020. By mid-March, most of the world was placed on, or faced the prospect of, near total lockdown, which halted global economic activity and caused a rapid decline of more than 30 percent of financial markets worldwide. Economists are now referring to this decline as the “stock market crash of 2020.”

The researchers’ study will be published in the Review of Accounting Studies.

About the University of Arkansas: As Arkansas' flagship institution, the U of A provides an internationally competitive education in more than 200 academic programs. Founded in 1871, the U of A contributes more than $2.2 billion to Arkansas’ economy through the teaching of new knowledge and skills, entrepreneurship and job development, discovery through research and creative activity while also providing training for professional disciplines. The Carnegie Foundation classifies the U of A among the few U.S. colleges and universities with the highest level of research activity. U.S. News & World Report ranks the U of A among the top public universities in the nation. See how the U of A works to build a better world at Arkansas Research News.


Caleb Rawson, assistant professor, accounting
Sam M. Walton College of Business

Matt McGowan, assistant director of research communications
University Relations


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