Information content of aggregate and individual insider trading

Research output: Working paper

Abstract

We examine the impact of aggregate insider trading on market returns in the UK. We find that, on aggregate, insiders are contrarians, but their trades are not informative, contrary to previous US evidence. We suggest that this discrepancy is related to the regulatory setting in the UK where insiders have to report their trades within six days. Then we analyse the short-run market reaction to insider trades and find that the information content of insider trading is limited to the period surrounding the announcement dates. We show that market-to-book, company size, stock volatility and market volatility have a significant impact on reporting period returns. In addition, we find that the market reaction is much weaker after controlling M/B and size. Finally, we show that insiders time in high volatile stocks, and following high market volatility.
LanguageEnglish
Number of pages45
DOIs
Publication statusPublished - 1 Sep 2011

Fingerprint

Insider trading
Insider
Information content
Market volatility
Market reaction
Stock volatility
Discrepancy
Book-to-market
Stock market
Market returns
Company size
Announcement
Short-run

Keywords

  • insider trading
  • bull-bear market
  • information content
  • contrarian strategy
  • managerial timing

Cite this

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title = "Information content of aggregate and individual insider trading",
abstract = "We examine the impact of aggregate insider trading on market returns in the UK. We find that, on aggregate, insiders are contrarians, but their trades are not informative, contrary to previous US evidence. We suggest that this discrepancy is related to the regulatory setting in the UK where insiders have to report their trades within six days. Then we analyse the short-run market reaction to insider trades and find that the information content of insider trading is limited to the period surrounding the announcement dates. We show that market-to-book, company size, stock volatility and market volatility have a significant impact on reporting period returns. In addition, we find that the market reaction is much weaker after controlling M/B and size. Finally, we show that insiders time in high volatile stocks, and following high market volatility.",
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author = "Dimitris Andriosopoulos and Hafiz Hoque",
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AB - We examine the impact of aggregate insider trading on market returns in the UK. We find that, on aggregate, insiders are contrarians, but their trades are not informative, contrary to previous US evidence. We suggest that this discrepancy is related to the regulatory setting in the UK where insiders have to report their trades within six days. Then we analyse the short-run market reaction to insider trades and find that the information content of insider trading is limited to the period surrounding the announcement dates. We show that market-to-book, company size, stock volatility and market volatility have a significant impact on reporting period returns. In addition, we find that the market reaction is much weaker after controlling M/B and size. Finally, we show that insiders time in high volatile stocks, and following high market volatility.

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