An investigation of causality between insider transactions and stock returns

Prior research shows that corporate insiders engage in profitable transactions by trading securities of their own firms. The main purpose of this study is to examine whether insider transactions and stock returns have causality relationships at the firm level for a sample of 2,521 firms during the period 1988 to 1998. We find a large impact of stock returns on subsequent insider transactions at both the aggregate and firm levels. The impact appears to be negative which suggests that insiders buy after stock price decreases and sell after stock price increases. Our findings on the predictive content of insider transactions for subsequent stock returns are primarily consistent with prior literature. We observe a positive but weak relationship between insider transactions and future stock returns.     

Cournot duopoly and insider trading with two insiders

We study the effect of competition among insiders in an extension of the static Kyle [Kyle, A. (1985). Continuous auctions and insider trading. Econometrica, 53, 1315–1335] model of insider trading introduced by Jain and Mirman (JMC) [Jain, N., & Mirman, L.J. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19–39]. In the JMC model competition in the real sector is introduced. In this paper we introduce competition in the stock sector in the JMC model by assuming that there is a manager who is responsible for making the real decisions of the firm as well as an ‘owner’ who has the same information as the manager but has no managerial responsibilities. In this way we can study the interaction between competition in the real sector and competition in the financial sector. We show that the stock price set by the market makers reveals more information than in the JMC model and that the expected equilibrium values of the manager’s profits sometimes decline and sometimes increase depending on the exogenous parameters of the model. Moreover, we prove that due to the competition in the financial sector, the level of output produced by the firm is less than in JMC. Finally, we also study the effect of financial competition in the case in which the market makers receive only one signal and analyze the comparative statics in this case.     

Insider trading around open-market share repurchases

We examine insider trading around open-market share repurchases and find that insiders trade passively in 3 months prior to repurchase announcements and in up to 12 months following the announcements. Furthermore, both pre-announcement and post-announcement abnormal insider trading is unrelated to short-term announcement returns but correlated with long-term post-announcement returns. Our results indicate that corporate insiders trade passively around repurchase announcements in accordance with their perceived undervaluation to exploit the long-run abnormal stock returns related to the events.     

Option introduction and insider trading in the NASDAQ/NMS equity market

This paper investigates and supports the hypothesis that insiders have an incentive to shift their informed trading activities when options initially are listed for a firm. Firm size is found to be related to the level of insider trading activity. There is a significant decrease in insider equity-market volume for the smallest third of firms, a significant increase in insider-equity market volume for the middle third of firms, and a significant decrease in insider equity-market volume for the largest third of firms. This supports the hypothesis of a difference in the degree of impact on equity volume upon option introduction based upon firm size. This research provides additional evidence of informed trading activities when option introduction, insider trading, and firm size are considered simultaneously.     

Insider Trading and regulation: A look at bank holding companies

With the passage of the Insider Trading Sanctions Act (ITSA) of 1984, regulators have attempted to reduce insider trading activities through their increased power to impose stiffer penalties on violators. In their study of trading activity associated with tender offers, Arshadi and Eyssell (1991) find that insiders went from being heavy net purchasers of their own firms' stock prior to tender offer announcements to being weak net sellers. The special status of bank holding companies suggests that the trading patterns of insiders would differ between bank holding companies and non-bank holding companies. The results in this paper indicate this to be the case as there is no change in the trading patterns for insiders of bank holding companies between the two regulatory periods.     

How do quotes and prices evolve around isolated informed trades?

This article investigates the order imbalance and price behavior of trades and quotes around isolated informed trades intraday. Different patterns of order flows around informed trades are documented because of the originating stock exchange, the type of informed trader, the size of the order, and the type of the firm whose shares are traded. The informed trader acts contrarian to prior trades. Informed purchases follow price declines, and sales are after price increases. The informed trade is recognized by the market maker. The purchase is executed at a significantly higher price, while the sale is executed at a significantly lower price. Trades contain more information if the insiders are at small firms. Larger orders and orders by top executives also contain more information. The order imbalance changes around an informed trade. Orders are seller-initiated prior to the purchase and become buyer-initiated after the trade. On the other hand, the order imbalance changes from buyer- to seller-initiated right around insider sales. Reversals in order imbalance are more pronounced for informed trades in small firms, for larger trades, and by top executives. There are important policy implications of the results. The recognition of informed trades by market makers justifies more scrutiny by the Securities and Exchange Commission in order to ensure fair trading.     

重大事件披露、股价异常波动与内幕交易——基于重大信息披露违规公司的经验证据

规范化的信息披露是证券市场正常运转的基石。本文利用重大事件披露违规公司研究信息披露违规背后是否存在股价异常波动与内幕交易现象，并将样本公司按照处分类型和公司类型分类检验。研究表明，总体样本公司的股票存在显著的内幕交易行为，并呈现出牛市背景下的新特征：受到公开谴责的公司股票内幕交易程度显著高于受到公开处罚的公司股票，ST公司股票的内幕交易程度显著高于非ST公司股票。     

信息披露与内部人股票交易获利策略——以六起内部人股票交易为基础的案例研究

本文以近期A股市场内部人股票交易活跃的六家公司为例,通过考查信息披露与内部人股票交易间的关系,解释内部人股票交易的获利策略。研究发现,在允许内部人交易本公司股票的情况下,信息披露与内部人股票交易关系密切,内部人存在利用私有信息和策略性信息披露两类获利策略。信息权力是内部人股票交易的获利基础,公司业绩是影响内部人股票交易获利策略选择的重要因素,而法律诉讼风险并没有对我国内部人股票交易和信息披露产生明显约束作用。这些发现对完善我国资本市场内部人股票交易行为规范具有一定借鉴意义。     

Two-period model of insider trading with correlated signals

In this article, we extend the one-period model of Jain and Mirman (1999) for asset trading with two correlated signals to a two period model. We then prove the existence and uniqueness of the Bayesian linear equilibrium. Finally, we perform comparative statics analysis with respect to Kyle (1985). Our findings reveal that adding another correlated signal (the real signal) to the total order flow of Kyle (1985), increases the amount of information incorporated in the stock price at each period and decreases the insider’s expected profits at each period.     

Contrarian strategies and investor overreaction under price limits

This study investigates the effects of price limits on investment performance of contrarian trading strategies in Taiwan’s stock market over the period 1997 to 2006. All contrarian strategies in intraday limit-hit stocks lead to superior returns relative to the benchmark index return, and the findings support the overreaction effect. Also, there is evidence of delayed overreaction reflected by price continuations for the overnight period and price reversals for the subsequent trading day. Moreover, investment performance of contrarian strategies is related to firm characteristics where investors tend to overreact more in small-size, high-turnover, and non-high-tech stocks. Finally, price overreaction is strong for up-hit stocks in the aftermath of catastrophic events. If overreaction exists, price-limit regulation designed to cool off investors and reduce price volatility may not be effective.     

Filtration enlargement-based time series forecast in view of insider trading

This survey reviews filtration enlargement models in view of insider trading. Although filtration enlargement aptly models insiders' informational advantage, the theoretical results have not attracted the attention of the empiricists, owing mainly to the lack of a bridge transforming the results to testable hypotheses, and/or the absence of econometrics method linking the hypotheses and the data. This survey provides a feasible avenue to estimate insider information and to detect trading from a relatively sophisticated theoretical model, where the dynamics of publicly available data (e.g., stock price) implies insider information before the information is completely digested. We complete the survey with an empirical illustration based on simulated data.     

Risk aversion,public disclosure,and partially informed outsiders

In this paper, we examine the impact of public disclosure and partially informed outsiders on a risk-averse insider’s trading behavior, market efficiency, and market depth. In our model, under disclosure requirements, except for the final auction, market depth is the same at every auction. When informed outsiders are risk-neutral, in contrast to the case of a risk-averse insider with no informed outsiders, the insider is more concerned about the uncertainty about future price risk. When the number of informed outsiders increases, market liquidity improves, and the insider increases the variance of her random component to conceal her trading strategy. However, since the insider is relatively more risk-averse, she pays less attention to doing this on her own. Besides, the order flow provided by informed outsiders and randomly added by the insider injects additional liquidity into the market. When informed outsiders are risk-averse, compared to risk-neutral informed outsiders, an insider is most concerned about trading risks brought by informed outsiders at the beginning of trading. Furthermore, whether the trader is an insider or informed outsider, the more risk-averse trader has lower expected profits. Moreover, outsiders’ greater risk aversion leads to a smaller market depth.     

Chicago board call options as predictors of common stock price changes

The intent in this study is to determine, using response surface methodology, whether call option prices can be relied upon to predict future rises in common stock prices. If call option prices are bid up by insiders prior to the time that new information becomes available to stock traders, recognition of this price action could form the basis of a stock trading strategy yielding returns superior to buy and hold. Evidence of such an advantage would be inconsistent with the efficient market hypothesis.     

The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence

This study assesses the joint decision of multiple earnings–management tools around insider trading. The Taiwanese evidence indicates significantly higher magnitudes of both discretionary accruals and asset sales before insider selling. In addition, to investigate the endogenous relationship between discretionary accruals and asset sales, this study develops a set of simultaneous equations and includes the inverse Mill’s ratio as a regressor to account for firms that choose not to use asset sales. The results indicate a marginal complementary correlation between discretionary accruals and asset sales before insider selling. Further tests find this complementary correlation becomes stronger when accompanying abnormal insider selling. The findings support the view that insiders consider both tools jointly and adjust them as complements to meet their directional earnings management objective.     

Unbundling Ownership and Control

We study control contests under asymmetric information. Using a mechanism design approach, we fully characterize the optimal control contest mechanism. The optimal mechanism requires increasing the number of shares owned by the incumbent insider if he remains in control, while giving him a golden parachute that includes both shares and cash if he is deposed. The model underscores a novel explanation for the prevalence and persistence of the separation of ownership from control: efficiency in control contests is more easily achieved when ownership of cash flow rights is not concentrated in the hands of insiders.     

基于注意力机制的LSTM股价趋势预测研究

针对中国股票市场,提出了一种基于注意力机制的LSTM股价趋势预测模型。选取42只中国上证50从2009年到2017年的股票数据为实验对象,根据股票市场普遍认可的经验规则,分别对每个技术指标进行量化处理得到股票涨跌的趋势数据,并和交易数据混合作为预测模型的输入,然后使用基于注意力机制的LSTM模型提取股价趋势特征进行预测。实验结果表明:引入股票离散型趋势数据到预测模型中,能够在已有交易数据和技术指标的基础上提升预测精确度,与传统的机器学习模型SVM和单一的LSTM模型相比,基于注意力机制的LSTM模型具有更好的预测能力。     

A variety-expansion model of growth with external habit formation

This paper introduces consumption externalities into one of the base line models of growth in which continuing expansion of product variety sustains long-term growth. We assume that consumers set a benchmark stock of consumption for each good so that there are commodity-specific external effects. Each good is produced by a monopolistically competitive firm and the firm exploits the presence of consumption external effects in determining its profit-maximizing price. Given those settings, we show that the introduction of consumption externalities may affect the balanced-growth characterization, transitional dynamics and policy effects in fundamental manners.     

Reputation and Managerial Truth-Telling as Self-Insurance

We investigate truth-telling by an informed insider, or manager, who repeatedly forecasts cash flows to competitive investors in a standard message game. The insider cannot trade on or sell private information, but faces imperfectly hedgeable nonwage income shocks. When compensation depends on the current stock price, a partially revealing equilibrium may exist in which the manager manipulates his reports, and hence the stock price, to reduce consumption variance. Intuitively, the manager builds reputation in good times when honesty is affordable, and exploits reputation in times of need. Endogenous reputation for honesty thus follows from a self-insurance motive.     

The 180-day lock-up period and insiders’ equity selling

This article examines how insiders who provide capital and advisory services determine the proportion of common stock to be sold during an IPO and shows that, after the IPO, a high-value investee's insiders continue to hold a significant fraction of its equity stake relative to a low-value investee's insiders. The result is consistent with the signaling of the insider trader reputation, the lock-up argument, and the only least-cost separating equilibrium that survives the intuitive criterion.     

An equilibrium model of insider trading in continuous time

We study a Bayesian–Nash equilibrium model of insider trading in continuous time. The supply of the risky asset is assumed to be stochastic. This supply can be interpreted as noise from nonrational traders (noise traders). A rational informed investor (the insider) has private information on the growth rate of the dividend flow rewarded by the risky asset. She is risk averse and maximizes her inter-temporal utility rate over an infinite time-horizon. The market is cleared by a risk neutral market maker who sets the price of the risky asset competitively as the conditional present value of future dividends, given the information supplied by the dividend history and the cumulative order flow. Due to the presence of noise traders, the market demand does not fully reveal the insider’s private information, which slowly becomes incorporated in prices. An interesting result of the paper is that a nonstandard linear filtering procedure gives an a priori form for the equilibrium strategy to be postulated. We show the existence of a stationary linear equilibrium where the insider acts strategically by taking advantage of the camouflage provided by the noise which affects the market maker’s estimates on private information. In this equilibrium, we find that the insider’s returns on the stock are uncorrelated over long periods of time. Finally, we show that the instantaneous variance of the price under asymmetric information lies between the instantaneous variance of the price under complete and incomplete information. The converse inequalities hold true for the unconditional variance of the price.