Corporate usage of financial derivatives, information asymmetry and insider trading

H Nguyen, Robert Faff, Allan Hodgson

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

This article investigates whether financial derivative usage by Australian corporations constitutes information asymmetry when proxied by profitable trading in the firms' securities by insiders. The findings show that insiders who trade in companies that employ derivatives make larger purchase returns compared to insiders in nonuser firms with regard to trading identity, trading intensity, variability of usage, volume of trading, and industry effects. A plausible explanation is that asymmetry is driven by derivative traders who undertake noisy transactions in firms where risk outcomes were previously transparent. Excess returns are confined to purchase transactions consistent with insiders primarily selling for noninformation reasons.
LanguageEnglish
Pages25-47
Number of pages23
JournalJournal of Futures Markets
Volume30
Issue number1
DOIs
Publication statusPublished - Jan 2010

Fingerprint

Insider trading
Information asymmetry
Insider
Financial derivatives
Derivatives
Purchase
Asymmetry
Excess returns
Traders
Firm risk
Industry effects
Trade intensity

Keywords

  • insider trading
  • information asymmetry
  • financial derivatives

Cite this

@article{28e758233b224cce9af5f7e1f0d80b6d,
title = "Corporate usage of financial derivatives, information asymmetry and insider trading",
abstract = "This article investigates whether financial derivative usage by Australian corporations constitutes information asymmetry when proxied by profitable trading in the firms' securities by insiders. The findings show that insiders who trade in companies that employ derivatives make larger purchase returns compared to insiders in nonuser firms with regard to trading identity, trading intensity, variability of usage, volume of trading, and industry effects. A plausible explanation is that asymmetry is driven by derivative traders who undertake noisy transactions in firms where risk outcomes were previously transparent. Excess returns are confined to purchase transactions consistent with insiders primarily selling for noninformation reasons.",
keywords = "insider trading, information asymmetry, financial derivatives",
author = "H Nguyen and Robert Faff and Allan Hodgson",
year = "2010",
month = "1",
doi = "10.1002/fut.20402",
language = "English",
volume = "30",
pages = "25--47",
journal = "Journal of Futures Markets",
issn = "0270-7314",
number = "1",

}

Corporate usage of financial derivatives, information asymmetry and insider trading. / Nguyen, H; Faff, Robert; Hodgson, Allan.

In: Journal of Futures Markets, Vol. 30, No. 1, 01.2010, p. 25-47.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Corporate usage of financial derivatives, information asymmetry and insider trading

AU - Nguyen, H

AU - Faff, Robert

AU - Hodgson, Allan

PY - 2010/1

Y1 - 2010/1

N2 - This article investigates whether financial derivative usage by Australian corporations constitutes information asymmetry when proxied by profitable trading in the firms' securities by insiders. The findings show that insiders who trade in companies that employ derivatives make larger purchase returns compared to insiders in nonuser firms with regard to trading identity, trading intensity, variability of usage, volume of trading, and industry effects. A plausible explanation is that asymmetry is driven by derivative traders who undertake noisy transactions in firms where risk outcomes were previously transparent. Excess returns are confined to purchase transactions consistent with insiders primarily selling for noninformation reasons.

AB - This article investigates whether financial derivative usage by Australian corporations constitutes information asymmetry when proxied by profitable trading in the firms' securities by insiders. The findings show that insiders who trade in companies that employ derivatives make larger purchase returns compared to insiders in nonuser firms with regard to trading identity, trading intensity, variability of usage, volume of trading, and industry effects. A plausible explanation is that asymmetry is driven by derivative traders who undertake noisy transactions in firms where risk outcomes were previously transparent. Excess returns are confined to purchase transactions consistent with insiders primarily selling for noninformation reasons.

KW - insider trading

KW - information asymmetry

KW - financial derivatives

U2 - 10.1002/fut.20402

DO - 10.1002/fut.20402

M3 - Article

VL - 30

SP - 25

EP - 47

JO - Journal of Futures Markets

T2 - Journal of Futures Markets

JF - Journal of Futures Markets

SN - 0270-7314

IS - 1

ER -