Information Transfer, Rent Extraction and Insider Trading Who Internalised the Private Information Externality?

2014 ◽  
Author(s):  
Allan Hodgson ◽  
Suntharee Lhaopadchan ◽  
Sirimon Treepongkaruna
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Information Transfer ◽  
Rent Extraction ◽  
Information Externality

Analysts' Information Acquisition and Stock Price Synchronicity: A Regulatory Perspective from China

2018 ◽  
Vol 33 (1) ◽  
pp. 153-179 ◽  
Author(s):  
Haiyan Jiang ◽  
Donghua Zhou ◽  
Joseph H. Zhang
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Stock Prices ◽  
Information Acquisition ◽  
Stock Price ◽  
Specific Information ◽  
Stock Price Synchronicity ◽  
Playing Field ◽  
Information Advantage ◽  
Private Information Acquisition

SYNOPSIS Against the backdrop of the Chinese Directive 40 (China's Reg FD) issued in 2007 as an attempt to curb insider trading and to level the information playing field, this study investigates whether analysts' private information acquisition influences the extent to which firm-specific information is impounded into stock prices, i.e., stock price synchronicity, and how the restrictions on selective disclosures imposed by Directive 40 have shaped the relationship between analyst information acquisition and synchronicity. Using a pre-Directive 40 sample, we show that synchronicity is negatively related to analysts' private information acquisition, which provides support for the “information advantage” argument of analysts' information production. However, the ability of analysts' private information acquisition in improving firm-specific information incorporated into stock price is mitigated post-Directive 40 due to a restriction on selective disclosures and/or private communication. Moreover, we find that this regulatory impact varies for firms being followed by affiliated analysts versus non-affiliated analysts. JEL Classifications: G14; G15; G17; G18.

Insider trading surrounding securities class action litigation and settlement announcements

2017 ◽  
Vol 43 (1) ◽  
pp. 124-140 ◽  
Author(s):  
Frederick Davis ◽  
Behzad Taghipour ◽  
Thomas J. Walker
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Stock Prices ◽  
Class Action ◽  
Market Model ◽  
Trading Activity ◽  
Content Type ◽  
Sarbanes Oxley ◽  
Abnormal Profits ◽  
The Impact

Purpose The purpose of this paper is to investigate the trading patterns of corporate insiders, both managing and non-managing, around the announcement dates of securities class action lawsuits and related legal settlements. Design/methodology/approach The authors use market model event study methodology to examine the impact of class action litigation and settlement announcements on the stock prices of sued firms. The authors then determine the extent of abnormal insider trading surrounding such announcements by comparing insider trading activity (volume and transaction counts) to prior insider trading in the same firm, and to a matched sample of firms not experiencing such litigation announcements. A multivariate framework is utilized to provide further insight into the determinants of such abnormal insider trading. Findings The authors establish that class action litigation and settlement announcements have a significant impact on the stock prices of sued firms, and that foreknowledge of these events appears to be used by insiders to earn abnormal profits. Moreover, results indicate that managing insiders exhibit higher opportunistic abnormal trading activity than non-managing insiders. Multivariate analysis shows that size, prior firm returns, and the implementation of the Sarbanes-Oxley Act are important determinants of such insider trading. Originality/value This appears to be the first paper to analyze insider trading surrounding class action settlement announcements, and raises concerns about the ethical conduct of certain insider groups while highlighting the importance of access to private information, even amongst insiders themselves.

scholarly journals After-Hours Block Trading, Short Sales, And Information Leakage: Evidence From Korea

2017 ◽  
Vol 33 (2) ◽  
pp. 263-282 ◽  
Author(s):  
Taehoon Lee ◽  
Sang-gyung Jun
Keyword(s):  
Stock Returns ◽  
Insider Trading ◽  
Private Information ◽  
Stock Price ◽  
Stock Return ◽  
Governance Structure ◽  
Sales Volume ◽  
Short Sales ◽  
After Hours ◽  
The Impact

We investigate the impact of insider trading in after-hours block market on stock price and short sales volume, before and after the trading becomes public information. During pre-announcement period, positive (negative) abnormal stock return is generated when insiders buy (sell) their shares but does not when quasi-insiders trade, implying that stock price reflects long-lived private information of corporate governance structure. The impact is most prominent when ownership shares are transferred to (from) corporate insiders. In contrast, short sales volume generally does not depend on the identity of block holders. Short sales volume has a negative correlation with abnormal stock return only during the transaction date, indicating that a short-sale decision of tippees is based on their sole expectation on instantaneous stock returns. We also find evidence that insiders select the timing of their trades with respect to maximizing their realized profits or minimizing their purchasing costs. 

Private Information in Executive Stock Option Trades: Evidence of Insider Trading in the UK

Economica ◽  
2009 ◽  
Vol 77 (308) ◽  
pp. 751-774 ◽  
Author(s):  
KYRIACOS KYRIACOU ◽  
KUL B. LUINTEL ◽  
BRYAN MASE
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Stock Option ◽  
Executive Stock Option ◽  
The Uk

The effects of liquidity trading on insider trade timing when an underlying option is present

2018 ◽  
Vol 44 (10) ◽  
pp. 1250-1270
Author(s):  
Han Ching Huang ◽  
Pei-Shan Tung
Keyword(s):  
Stock Returns ◽  
Insider Trading ◽  
Private Information ◽  
Trading Volume ◽  
Future Research ◽  
Trading Activity ◽  
Content Type ◽  
Corporate Announcements ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine whether the underlying option impacts an insider’s propensity to purchase and sell before corporate announcements, the proportion of insiders’ trading after announcements relative to before announcements, and the insider’s profitability around corporate announcements. Design/methodology/approach The authors test whether the timing information and option have impacted on the tendency of insider trade, the percentage of all shares traded by insiders in the post-announcement to pre-announcement periods and the average cumulative abnormal stock returns during the pre-announcement period. Findings Insiders’ propensity to trade before announcements is higher for stocks without options listed than for stocks with traded options. This result is stronger for unscheduled announcements than for scheduled ones. The proportion of insiders’ trade volume after announcements relative to before announcements in stocks that have not options listed is higher than those in stocks with traded options. The positive relationship between the insiders’ signed volume and the informational content of corporate announcements is stronger in stocks without traded options than in stocks with options listed. Insider trades prior to unscheduled announcement are more profitable than those before scheduled ones. Research limitations/implications The paper examines whether there is a difference between the effects of optioned stock and non-optioned stock. Roll et al. (2010) use the relative trading volume of options to stock ratio (O/S) to proxy for informed options trading activity. Future research could explore the impact of O/S. Moreover, the authors examine how insiders with private information use such information to trade in their own firms. Mehta et al. (2017) argue that insiders also use private information to facilitate trading (shadow trading) in linked firms, such as supply chain partners or competitors. Therefore, future research could consider the impact of shadow trading. Social implications Since the insider’s propensity to buy before announcements in stocks without options listed is larger than in stocks with traded options and the relationship is stronger for unscheduled announcements than for scheduled ones, the efforts of regulators should focus on monitoring insider trading in stocks without options listed prior to unscheduled announcements. Originality/value First, Lei and Wang (2014) find that the increasing pattern of insider’s propensity to trade before unscheduled announcements is larger than that before scheduled announcements. The authors document the underlying option has impacted the insider’s propensity to purchase and sell, and the relationship is stronger for unscheduled announcements than for scheduled ones. Second, related studies show insider’s trading activity has shifted from periods before corporate announcements to periods after corporate announcements to decrease litigation risk. This paper find the underlying option has influenced the proportion of insiders’ trading after announcements relative to before announcements when the illegal insider trade-related penalties increase.

Institutional investment in repurchase stocks: insider trading information

2020 ◽  
Vol 46 (10) ◽  
pp. 1305-1319
Author(s):  
Jin-Ying Wang
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Public Information ◽  
International Investment ◽  
Share Repurchase ◽  
Open Market ◽  
Institutional Trading ◽  
Excess Returns ◽  
Firm Level ◽  
Content Type

PurposeThis study explores whether institutional investors can distinguish an undervalued share repurchase from a falsely signaled share repurchase. This study also aims to determine what information institutions use when investing in repurchase stocks.Design/methodology/approachThis study uses unique Taiwanese data and concentrates on foreign institutions because they are the most sophisticated investors in Taiwan.FindingsThe results show that foreign institutional trading in open market repurchase (OMR) stocks will earn both positive concurrent and post-OMR excess returns. In addition, there is a significant positive relationship between pre-OMR insider trading and foreign institutional trading during the OMR period; that is, foreign institutions follow insiders to trade their OMR stocks.Practical implicationsThis study finds that foreign institutions use publicly available data on insider trading to choose OMR stocks and create excess returns. This encourages individual investors without private information, who can also earn a positive return if they diligently study available public information.Originality/valueThis study contributes to the international investment literature by determining the price impacts associated with foreigner trading in the firm-level returns of the host country. In addition, this study finds that foreign institutions choose OMRs based on insider trading information, which fills the gap in existing studies on share repurchasing. Moreover, this study enriches the insider literature by showing how foreign institutions can benefit by using insider trading information.

scholarly journals The Role of Information in Innovation and Competition

2015 ◽  
Vol 14 (4) ◽  
pp. 828-870 ◽  
Author(s):  
Ufuk Akcigit ◽  
Qingmin Liu
Keyword(s):  
Private Information ◽  
Trial And Error ◽  
Welfare Losses ◽  
Dead End ◽  
Wrong Direction ◽  
Efficiency Losses ◽  
Different Types ◽  
Information Externality ◽  
Role Of Information

Abstract Innovation is typically a trial-and-error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead-end findings. Time and resources are wasted on projects that other firms have already found to be fruitless. We offer a simple model with two firms and two research lines to study this prevalent problem. We characterize the equilibrium in a decentralized environment that necessarily entails significant efficiency losses due to wasteful dead-end replication and an information externality that leads to an early abandonment of the risky project. We show that different types of firms follow different innovation strategies and create different kinds of welfare losses. In an extension of the core model, we also study a centralized mechanism whereby firms are incentivized to disclose their actions and share their private information in a timely manner.

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