To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements

Korczak, Adriana; Korczak, Piotr; Lasfer, Meziane

doi:10.1111/j.1468-5957.2010.02185.x

Cited by 47 publications

(38 citation statements)

References 42 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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“…In general, this effect would be expected if sales took place for liquidity reasons. In addition Korczak, Korczak and Lasfer (2010) argue that insider selling before bad news induces regulatory attention and litigation risk, and rational insiders anticipating these risks will be less likely to trade overvalued securities. Given this general insignificance, we drop sales transactions from the subsequent analysis, and concentrate on directors' purchases.…”

mentioning

confidence: 99%

Does the Stock Market Gender Stereotype Corporate Boards? Evidence from the Market's Reaction to Directors' Trades

Gregory

Jeanes²,

Tharyan

et al. 2012

British J of Management

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Attitudes towards male and female managers within organizations are well documented, but how the stock market perceives their relative capabilities is less studied. Recent evidence documents a negative short‐run market reaction to the appointment of female chief executive officers and suggests that female executives are less informed than their male counterparts about future corporate performance. These results appear to dispute the stock market value of having women on corporate boards. However, such short‐run market reactions may retain a ‘gender bias’, reflecting the prevalence of negative stereotypes, where the market reacts to ‘beliefs’ rather than ‘performance’. This study tests for such bias by examining the stock market reaction to directors' trades in their own companies' shares, by measuring both the short‐run and longer‐term returns after the directors' trades. Allowing for firm and trade effects, some evidence is found that, in the longer term, markets recognize that female executives' trades are informative about future corporate performance, although initially markets underestimate these effects. This has important implications for research that has attempted to assess the value of board diversity by examining only short‐run stock market responses.

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“…The appearance of abnormal returns forerunning announcements is something which has been well documented in the literature (Seyhun 1992, Meulbroek 1992, Jarrell and Poulsen 1989, Dubow and Monteiro 2006, Korczak et al 2010.…”

Section: Discussionmentioning

confidence: 71%

“…This draws a question over the efficacy of the market abuse legislation and its mechanisms for enforcement. Some empirical work suggests that informed trading is curbed when insider trading regulations are introduced, Korczak et al (2010) point to UK evidence supporting this point. Durnev and Nain (2005), who examine a broad sample of twenty one countries, find that on the whole, restrictions on insider activity curb levels of informed trading, but that in companies where the share ownership is concentrated among large shareholders, these restrictions become less effective.…”

Section: What Is the Effect Of Regulation And Enforcement?mentioning

confidence: 99%

“…In the UK context a similar perspective is offered, Korczak et al (2010) show that insiders display a propensity to trade ahead of company news announcements, and the capacity for investors to buy ahead of good news announcements outweighs their inclination to sell prior to the release of negative information. However, the level of insider activity before trading ahead of bad news is governed by the supposed significance of the event.…”

Section: Pre-announcement Abnormal Returnsmentioning

confidence: 99%

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The efficacy of market abuse regulation in the UK

Lambe

2016

JFRC

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Analyzed in this study are the returns on stock prices of target companies surrounding the first publicized dates of completed takeovers in the UK between 2001 and 2010. Our sample is analyzed with respect to the event dates at which news of the takeover reaches the market both through a rumored date and official announcement. Statistically significant cumulative average abnormal returns (CAARs) prior to the event date are observed across the sample. This may indicate that trading on material nonpublic information is still a contributory factor in the run-up proportion of takeover premiums, thus drawing a question over the efficacy of the regulatory system. JEL codes: G34, G38, G18

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To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements

Cited by 47 publications

References 42 publications

Director Dealings as an Investment Strategy

Director Dealings as an Investment Strategy

Does the Stock Market Gender Stereotype Corporate Boards? Evidence from the Market's Reaction to Directors' Trades

The efficacy of market abuse regulation in the UK

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