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Does legal insider trading contribute to market efficiency? Using the refinement proposed by the recent microstructure literature, we analyze the information content of legal insider trading. Our sample encompasses 2,110 different companies subject to 59,244 aggregated daily insider trades over the period from January 1995 to the end of September 1999. Our main findings are the followings. (i) Consistent with previous literature, financial markets offer a mild response in terms of abnormal returns to insider trading activities. (ii) The univariate analysis of stock prices on insider net purchase and net sale days suggests insiders' market timing ability. (iii) Market liquidity seems to be weaker on insider net purchase days, indicating that net buyer insiders are on average market liquidity consumers. (iv) Market liquidity seems to be higher on insider net sale days, indicating that net seller insiders are on average market liquidity providers. (v) The analysis of the considered information proxy reveals that insiders enhance market efficiency. Insider trading clearly permits faster price discovery on insider trading days.

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