Strategic insider trading in foreign exchange markets

Inside traders are well-documented to leverage private idiosyncratic information for personal gain in centralized exchanges such as stock markets. Evidence is rare, however, for decentralized and fragmented over-the-counter markets with microstructure properties that make them particularly vulnerable to stealth trading. The 2015 criminal conviction of Hill and Kamay for foreign exchange insider trading is the first in over-the-counter markets. We analyze their actions to show the complex, strategic decision-making of insiders even in opaque markets where they run a low risk of detection and prosecution: they trade when the market is most sensitive to local information, carefully choose and time their trades to minimize the risk of confounding information disclosures that may affect their profits, as well as act during high noise trading to mask their trades. Our results are consistent with evidence on insider trading in stock markets. We highlight the limitations of regulatory control in over-the-counter markets where technology-based surveillance methods are ineffective, while reinforcing the importance of whistleblowers in detecting and preventing insider trading.     

Exchange trading rules and stock market liquidity

We examine stock exchange trading rules for market manipulation, insider trading, and broker–agency conflict, across countries and over time, in 42 stock exchanges around the world. Some stock exchanges have extremely detailed rules that explicitly prohibit specific manipulative practices, but others use less precise and broadly framed rules. We create new indices for market manipulation, insider trading, and broker–agency conflict based on the specific provisions in the trading rules of each stock exchange. We show that differences in exchange trading rules, over time and across markets, significantly affect liquidity.     

卖空机制能够约束内部人减持吗？——基于融资融券制度的经验证据

本文以我国放松卖空管制为视角,探究其对内部人减持的影响。研究表明,卖空机制能够抑制企业内部人减持行为。机制分析发现,卖空对内部人减持的抑制作用是通过缓解股权高溢价实现的。进一步研究表明,卖空能够抑制大股东、董事以及管理层减持,但对监事减持无影响;卖空能够降低内部人减持的获利程度,并且在内部人减持动机更大时,对内部人减持的抑制作用更强;卖空通过约束内部人减持提升了股票定价效率,还有助于降低内部人增持行为。本文的研究结论丰富了卖空和内部人减持领域的文献,并对政府部门完善制度设计具有启示意义。     

An Empirical Analysis of Illegal Insider Trading

Whether insider trading affects stock prices is central to both the current debate over whether insider trading is harmful or pervasive, and to the broader public policy issue of how best to regulate securities markets. Using previously unexplored data on illegal insider trading from the Securities and Exchange Commission, this paper finds that the stock market detects the possibility of informed trading and impounds this information into the stock price. Specifically, the abnormal return on an insider trading day averages 3%, and almost half of the pre-announcement stock price run-up observed before takeovers occurs on insider trading days. Both the amount traded by the insider and additional trade-specific characteristics lead to the market's recognition of the informed trading.     

卖空者与内幕交易——来自中国证券市场的证据

本文研究上市公司内部人减持、年报、诉讼、分析师评级、停复牌以及高送转等重大公告前后卖空交易行为的变化,系统考察卖空者是否参与内幕交易以及何种因素影响卖空者参与内幕交易,发现卖空率较高的股票具有较低的未来收益,表明卖空者拥有信息优势,属知情交易者;卖空者拥有非常精确的择时交易能力,在重大利空公告前显著增加卖空量,而在利好公告前则显著减少卖空头寸,表明卖空者作为知情交易者的信息优势源自内幕消息;公司内、外部投资者的信息不对称程度越低或公司所在地的法治水平越高,卖空者参与内幕交易的行为就越少。因此,监管机构应密切关注公司重大消息发布前后卖空量的异常变动,同时,完善信息披露规则、健全证券分析师制度并强化法律法规的执行力度,才能有效防范卖空者参与内幕交易。     

Insider Trading Activity,Different Market Regimens,and Abnormal Returns

This paper show that corporate insiders earn abnormal returns by adjusting their own firm's stock trading to future market movements. Insider trading activity in bear markets is characterized by decreases in insider sales and increases in purchases, consistent with the view that those markets are followed by improved economic conditions. Conversely, insider sales increase and purchases decrease in bull markets, consistent with the view that inferior market conditions tend to follow those periods.     

INSIDER TRADING EFFECTS ON STOCK RETURNS AROUND OPEN-MARKET STOCK REPURCHASE ANNOUNCEMENTS: AN EMPIRICAL STUDY

In this paper we empirically examine the effects of insider trading activities, the percentage of common shares outstanding authorized for repurchase, and management ownership on stock returns around open-market stock repurchase announcements. The study is conducted on a sample of 204 firms that announced open-market stock repurchases between 1982 and 1990. Results show that insider trading activities during the month that immediately precedes the announcement have a significant effect. While stockholders of firms with insider net selling activities earn positive excess returns, those of firms with insider net buying activities earn larger and more significant excess returns. Insider trading activities during more distant periods do not show any effects on stock returns. Results also indicate that management ownership has a significant positive effect on stock returns, and this effect is more positive when the percentage of common shares outstanding authorized for repurchase is large.     

Where Is the Market? Evidence from Cross-Listings in the United States

We analyze the location of stock trading for firms with a UScross-listing. The fraction of trading that occurs in the UnitedStates tends to be larger for companies from countries thatare geographically close to the United States and feature lowfinancial development and poor insider trading protection. Forcompanies based in developed countries, trading volume in theUnited States is larger if the company is small, volatile, andtechnology-oriented, while this does not apply to emerging countryfirms. The domestic turnover rate increases in the cross-listingyear and remains higher for firms based in developed markets,but not for emerging market firms. Domestic trading volume actuallydeclines for companies from countries with poor enforcementof insider trading regulation.     

Do Insider Trading Laws Work?

This paper presents the first comprehensive global study of insider trading laws and their first enforcement. In a sample of 4,541 acquisitions from 52 countries, I find that insider trading enforcement increases both the incidence, and the profitability of insider trading. The expected total insider trading gains increase. Consequently, laws that proscribe insider trading fail to eliminate insider profits. However, harsher laws work better at reducing the incidence of illegal insider trading.     

Volatility effects of institutional trading in foreign stocks

This paper examines the impact of institutional trades on volatility in international stocks across 43 countries. There is a temporary volatility spike during the trade execution period, merely reflecting the price impact costs faced by the institutions. Cross sectional regressions suggest that trade imbalances, enforcement of insider trading laws, stock prices, and an emerging market classification are positively associated with temporary volatility increases whereas the presence of market makers and better shareholders’ rights dampen such increases. In the long term, institutional trades do not destabilize markets as the levels of volatility after their trades are almost identical to their pre-decision levels.     

上市公司内部人亲属股票交易行为研究

中国的《证券法》等法律法规禁止内部人短线交易,并设置了内部人禁止股票买卖的敏感期,但内部人亲属不受此限制。本文对深圳证券交易所2007年5月至2010年5月的内部人亲属股票交易数据分析发现:(1)上市公司的内部人亲属对内部人任职企业的股票交易次数已经远远多于内部人自身的交易次数;(2)内部人亲属的交易存在很多的短线交易行为与敏感期交易行为;(3)内部人亲属股票交易整体而言能够获得超额收益;(4)短线交易与敏感期交易有助于内部人亲属获得超额收益;(5)董事长或总经理的亲属获得的收益比其他内部人亲属更高。据此,本文认为证券交易监管机构需要关注内部人亲属股票交易行为,尤其警惕内部人亲属交易可能成为规避内部人交易管制的替代方式。     

Ethical norms of CFO insider trading

Insider trading encompasses the buying or selling of stocks based on non-public information about the securities in question. Engaging in insider trading is particularly unethical for a Chief Financial Officer (CFO) who holds a fiduciary responsibility to shareholders and also typically is ethically obligated by his or her professional responsibilities. Although the Securities and Exchange Commission (1934) has expressly forbidden insider trading, the business press suggests insider trading continues. An application of Cooter’s [Cooter, R., 1997. Normative failure theory of law. Cornell Law Review 82 (5), 947–979; Cooter, R., 2000. Three effects of social norms on law: Expression, deterrence and internalization. Oregon Law Review 79 (1), 1–22] theory of the law and norms suggests that one explanation for the continuation of insider trading is that although illegal, norms may fail to consider insider trader to be unethical. Nevertheless, our knowledge of the norms regarding insider trading is limited. To address this gap, we examine the ethical norms regarding CFOs’ insider trading, and consider the extent to which contextual variables are associated with ethical perceptions of CFO insider trading. We find that insider trading by CFOs is generally perceived to be unethical but not by all participants, nor all ethical measures. Moral equity is particularly informative for understanding the ethicality of CFO insider trading. When relying on the multidimensional ethics scale (MES) measure of moral equity, our results reveal that contextual factors, including trading method used (stock options or share equity) and the direction of earnings surprise (favorable or unfavorable) are significant. We also found that participants that possessed more work experience or financial expertise had a greater tendency to consider CFO insider trading to be unethical than those with less work experience or financial expertise, which suggests the importance of training and education of the general public. In addition, our findings suggest that tougher sanctions will encourage compliance with existing insider trading laws. Implications of our findings for public policy are discussed.     

Is technical analysis profitable on a stock market which has characteristics that suggest it may be inefficient?

This paper considers the returns to technical analysis on the New Zealand stock market. The small nature, short-selling constraints, lack of analyst coverage, and loose insider trading regulation suggest that the New Zealand equity market may be less efficient than overseas markets. This raises the possibility that technical analysis is still profitable in New Zealand. Using a bootstrapping technique with common null models for stock returns and 12 popular technical trading rules, we find that the returns to technical analysis in New Zealand follow a similar pattern to those in large offshore markets. Technical analysis is no longer profitable.     

Do insiders trade on innovation?

We find that pure insider share purchases—which we define as insider purchases over two successive years without any corresponding sales—are a strong predictor of a firm’s patent applications. The predictability increases with the quality of the patent: Applications for the highest-quality, breakthrough patents increase by 21% in the year following pure insider purchases in our sample. These purchases are associated with large abnormal stock returns of 1.1% per month (14% annualized) over the subsequent three-year period. We also document that stock price responds less to the subsequent announcement of the grant of patent if the application for the patent has been preceded by pure insider purchases, consistent with the idea that insider purchases reveal information about future firm innovation. Our evidence has implications for understanding insider trading within technology companies that have become a dominant feature of US stock markets in recent decades.     

内部控制与内部人违规交易行为

以2009~2012年沪市上市公司为研究样本,以内部人违规交易比率、内部人敏感期交易比率和内部人延迟披露比率作为内部人违规交易行为的替代变量,考察了内部控制对内部人违规交易行为的影响。研究发现,内部控制质量与内部人违规交易比率和内部人敏感期交易比率显著负相关,与内部人延迟披露比率之间的关系不显著。研究结果表明,总体而言,内部控制能有效抑制内部人违规交易行为的发生,有利于提高内部人交易的合法合规性。     

International equity portfolio investment and enforcement of insider trading laws: a cross-country analysis

Review of Quantitative Finance and Accounting - In this study, we examine the effects of stringent insider trading laws’ enforcement, institutions and stock market development on...     

Insider Trading Restrictions and Analysts' Incentives to Follow Firms

Motivated by extant finance theory predicting that insider trading crowds out private information acquisition by outsiders, we use data for 100 countries for the years 1987–2000 to study whether analyst following in a country increases following restriction of insider trading activities. We document that analyst following increases after initial enforcement of insider trading laws. This increase is concentrated in emerging market countries, but is smaller if the country has previously liberalized its capital market. We also find that analyst following responds less intensely to initial enforcement when a country has a preexisting portfolio of strong investor protections.     

法律完备度与证券市场内幕交易监管有效性分析

本文从执法者的行动策略和内幕交易监管制度这两个方面,分析了我国内幕交易法律的完备度,并寻找我国内幕交易监管有效性相对较弱的原因。通过与发达国家证券市场执法策略和制度安排的比较,发现内幕交易法律的不完备性将直接影响到内幕交易监管的有效性。一个国家的内幕交易法律越完备,其内幕交易监管的有效性也就越强。     

Market Efficiency and Returns to Simple Technical Trading Rules: Further Evidence from U.S., U.K., Asian and Chinese Stock Markets

Tian, Wan and Guo (2002) explored the predictability and profitability of technical trading rules in markets with different efficiency levels; namely, the U.S. and China. In the case of the U.S. they found rules to have no predictability after 1975, whereas their results give support to technical trading rules having both predictability and profitability for the Chinese markets across the 1990's. The purpose of this paper is to extend the analysis of Tian et al. in two ways. First, to see if the conclusions extend to other markets – namely, the U.K., Hong Kong and Japan. Second, in the case of China, to examine whether the predictability and profitability of technical trading rules changed across the 1990's. On the basis of daily data Tian et al's results for the U.S. market are supported by the results for a number of the main developed markets where the technical trading rules had predictive ability during the 1970's that disappeared by the 1990's. Furthermore, the results suggest that while technical trading rules had short term predictive ability and profitability in the Chinese stock markets during the 1990's, this lessened as the decade progressed. JEL Classification: G14, G15     

对金融衍生品市场内幕交易的一些新思考--澳大利亚现行的反内幕交易法及其带给我们的若干启示

本文着眼于澳大利亚在治理金融衍生品市场内幕交易中积累的丰富经验,针对一个崭新的前瞻性课题,即金融衍生品市场的内幕交易问题展开研究。作者认为,由于内幕交易与信息非对称性之间存在的内在冲突,实际上反内幕交易法规很难有效地阻止金融衍生品的内幕交易行为,过于复杂的反内幕交易法规会对市场产生一些负面影响,而放松内幕交易监管这一新思维将对市场的良性发展更为有益,应该让市场来决定内幕交易行为的“存亡”。但目前最为现实、温和的选择仍然是修改现行反内幕交易法,以维护市场的公平性和有效性。最后,笔者对如何缓解中国目前内幕交易猖獗的现状提出建议。