Time‐Varying Liquidity Trading, Private Information and Insider Trading

Qin, Lei; Wang, Xuewu

doi:10.1111/j.1468-036x.2011.00634.x

Cited by 13 publications

(7 citation statements)

References 49 publications

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“…Similarly, Baty (2008) found that directors' purchases demonstrated a positive average abnormal return for most of the event window tested. Our results support all these views, and those of Korczak, Korczak and Lasfer (2010) and Lei and Wang (2012) and suggest that directors have the ability to tactically time the market, and that investors who imitate directors' purchases can obtain abnormal returns (Bodie, Kane & Marcus, 2011).…”

Section: Buy Portfoliosupporting

confidence: 77%

Director Dealings as an Investment Strategy

Moodley

Müller²,

Ward

2014

SSRN Journal

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Abstracthe Insider Trading Act of 1999 and Johannesburg Stock Exchange (JSE) regulations require transparency in director dealings. Directors are required to report all share trading in companies of which they are principals, and this information has been regarded as a signal to the market. We examine the value of this information, using 13 840 director trades and a portfolio time series approach from 2002 to 2013. Whereas most studies have used an event study methodology, we treat the problem primarily as an investment style, and using a trading rule approach we optimise the look-back and holding periods to show statistically and economically significant returns for investors who mimic director trades. When directors of companies report net acquisitions of shares over the preceding three months, investors who then purchase an equal weighted portfolio of the same shares, and hold these for four months, would have achieved an annualised return of 24.3% after transaction costs. When directors of companies report net disposals of shares over the preceding three months, investors who purchase a portfolio of the same shares, and hold these for three months, would have achieved an annualised return of 21.0% after transaction costs. Both of these strategies out-performed the comparable equal weighted benchmark return of 19.1% pa over the same period. We triangulate these results using an event-study methodology, and whilst we find similar results for investors following a directors' purchasing strategy, the event study methodology shows that investors who purchase shares following a directors' selling strategy would underperform. In both instances, the style analysis reveals that imitating directors' trading lacked persistence after the global financial crisis of 2008, and we would not recommend either strategy.

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Section: Buy Portfoliosupporting

confidence: 77%

Director Dealings as an Investment Strategy

Moodley

Müller²,

Ward

2014

SSRN Journal

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“…My study contributes to the literature on pre‐announcement trading behaviours, which tends to focus on boosted informed trading, trades by insiders (Meulbroek, ; Ravina and Sapienza, ; Cohen et al ., ) and trades beyond insiders (Aktas et al ., ; Christophe et al ., ; Kaniel et al ., ; Baruch et al ., ). Few studies have addressed the reduced response in trading behaviours, and they are mainly concentrated on insider silence (Marin and Olivier, ; Lei and Wang, ; Akbas, ), and investor inattention (Loh, ; Louis and Sun, ; Michaely et al ., ). Discussions on the behaviour of liquidity traders are limited, and, in most cases, they are being treated as noise traders.…”

Section: Introductionmentioning

confidence: 99%

“…() focus on dividend announcements and group them into anticipated and unanticipated dividend announcements but do not verify whether an anticipated dividend announcement is informational or not (as an announcement with an unchanged dividend may contain no incremental information) which may affect informed traders’ trading interests. Chae () and Lei and Wang () classify corporate announcements into scheduled and unscheduled events, but do not consider the various predictability of unscheduled events, as some are easier to predict than others. My study contributes to optimising the researchers’ classification method by distinguishing the events which can be anticipated from the unscheduled group, as liquidity traders can continue to choose to wait for the news if the news is predictable.…”

Section: Introductionmentioning

confidence: 99%

“…My study contributes to optimising the researchers’ classification method by distinguishing the events which can be anticipated from the unscheduled group, as liquidity traders can continue to choose to wait for the news if the news is predictable. In addition, Chae () and Lei and Wang () use merger and acquisition announcements as their proxies of unscheduled events. One cannot say whether the difference in market reactions is due to the value of the information (as the takeover events generally associate with a significantly greater price premium and price run‐up than nontakeover events) or the timing factor.…”

Section: Introductionmentioning

confidence: 99%

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The type of corporate announcements and its implication on trading behaviour

Zheng

2018

Accounting & Finance

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I report the empirical evidence to show how firms' expected and unexpected announcements affect investors' trading behaviour. I find that trading volume decreases before expected announcements, either scheduled or unscheduled, consistent with models that predict that discretionary liquidity traders may postpone their trading until after an anticipated news release. I also find that the magnitude of pre-announcement trading reactions is negatively associated with the level of pre-disclosure information asymmetry. I further find that trading volume is boosted before unexpected announcements, and the relation between the magnitude of pre-announcement trading reactions and the predisclosure information asymmetry is weakly significant or insignificant.

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“…Insiders could easily trade and act with attempt to infl uence market prices. Lei and Wang (2014) investigate the insider trading in the US stock market between scheduled versus unscheduled corporate announcements to explore how corporate insiders use their private information. They fi nd that insider buy (sell) more before positive (negative) announcements and their purchases are more profi table before unscheduled announcements than before scheduled ones.…”

Section: Introductionmentioning

confidence: 99%

Insider Trading Activities and Returns of German Blue Chips

Linnertová¹,

Deev²

2016

Acta Univ. Agric. Silvic. Mendelianae Brun.

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Thus, stock returns may be used to predict future insider trading activity. The strong causality between stock returns and future insider buying and selling transactions is further confi rmed with three out of four employed insider trading indices. The fact of the legal insider trade (either buy or sell) is more important than its volume. The reverse relationship is weak and valid only for longer time horizon of twelve months. Our results indicate that insider traders do not degrade the market effi ciency in the long run.

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Time‐Varying Liquidity Trading, Private Information and Insider Trading

Cited by 13 publications

References 49 publications

Director Dealings as an Investment Strategy

Director Dealings as an Investment Strategy

The type of corporate announcements and its implication on trading behaviour

Insider Trading Activities and Returns of German Blue Chips

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