Director trades, profitability and market efficiency: New evidence
We investigate if directors of Australian companies can generate abnormal returns on their reported trades, if these abnormal returns are significant enough to be mimicked by outsiders, and if insider trades have an effect on returns of other investors. We find that insiders take advantage of their...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Elsevier
2023-09-01
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| Series: | Journal of Economic Criminology |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S294979142300009X |
| _version_ | 1827302604842991616 |
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| author | Reza Bradrania Tina Prodromou P. Joakim Westerholm |
| author_facet | Reza Bradrania Tina Prodromou P. Joakim Westerholm |
| author_sort | Reza Bradrania |
| collection | DOAJ |
| description | We investigate if directors of Australian companies can generate abnormal returns on their reported trades, if these abnormal returns are significant enough to be mimicked by outsiders, and if insider trades have an effect on returns of other investors. We find that insiders take advantage of their private information in stocks of larger corporations, but generally do not in medium and small capitalization firms, indicating that the insiders are attracted to the liquidity and a greater presence of uninformed traders in large stocks. We find that outsiders can make profitable trades net of transaction costs by following insiders’ sale trades in large and medium size firms, otherwise tracking insider trades result in net losses for outsiders. They accumulate on average a net abnormal profit of 4.17 % after a year following insiders sale trades. We propose that market quality can be improved with public access to good quality aggregated data on reported director insider trades. |
| first_indexed | 2024-04-24T16:47:05Z |
| format | Article |
| id | doaj.art-31db1ad7063d42e2ac9f66e89bbbb192 |
| institution | Directory Open Access Journal |
| issn | 2949-7914 |
| language | English |
| last_indexed | 2024-04-24T16:47:05Z |
| publishDate | 2023-09-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Journal of Economic Criminology |
| spelling | doaj.art-31db1ad7063d42e2ac9f66e89bbbb1922024-03-29T05:52:02ZengElsevierJournal of Economic Criminology2949-79142023-09-011100009Director trades, profitability and market efficiency: New evidenceReza Bradrania0Tina Prodromou1P. Joakim Westerholm2University of South Australia, UniSA Business, Australia; Corresponding author.The University of Wollongong, School of Accounting, Economics and Finance, AustraliaThe University of Sydney Business School, AustraliaWe investigate if directors of Australian companies can generate abnormal returns on their reported trades, if these abnormal returns are significant enough to be mimicked by outsiders, and if insider trades have an effect on returns of other investors. We find that insiders take advantage of their private information in stocks of larger corporations, but generally do not in medium and small capitalization firms, indicating that the insiders are attracted to the liquidity and a greater presence of uninformed traders in large stocks. We find that outsiders can make profitable trades net of transaction costs by following insiders’ sale trades in large and medium size firms, otherwise tracking insider trades result in net losses for outsiders. They accumulate on average a net abnormal profit of 4.17 % after a year following insiders sale trades. We propose that market quality can be improved with public access to good quality aggregated data on reported director insider trades.http://www.sciencedirect.com/science/article/pii/S294979142300009XInsider tradingReported insider tradesInformed tradingInformation asymmetryMarket efficiency |
| spellingShingle | Reza Bradrania Tina Prodromou P. Joakim Westerholm Director trades, profitability and market efficiency: New evidence Journal of Economic Criminology Insider trading Reported insider trades Informed trading Information asymmetry Market efficiency |
| title | Director trades, profitability and market efficiency: New evidence |
| title_full | Director trades, profitability and market efficiency: New evidence |
| title_fullStr | Director trades, profitability and market efficiency: New evidence |
| title_full_unstemmed | Director trades, profitability and market efficiency: New evidence |
| title_short | Director trades, profitability and market efficiency: New evidence |
| title_sort | director trades profitability and market efficiency new evidence |
| topic | Insider trading Reported insider trades Informed trading Information asymmetry Market efficiency |
| url | http://www.sciencedirect.com/science/article/pii/S294979142300009X |
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