Insider trading and future stock returns in firms with concentrated ownership levels. Issue 2 (22nd January 2019)

• Record Type: Journal Article
• Authors: Chronopoulos, Dimitris K.; McMillan, David G.; Papadimitriou, Fotios I.; Tavakoli, Manouchehr
• Is Part Of: European journal of finance. Volume 25:Issue 2(2019)
• Page Start: 139
• Page End: 154
• Publication Date: 2019-01-22
• Subjects: Insider trading -- stock returns -- economic value -- trading strategies; G12 -- G14 -- C53; Finance -- Periodicals; Finance -- Europe -- Periodicals; International finance -- Periodicals; 332.094
• DOI: 10.1080/1351847X.2018.1487312
• Languages: English
• ISSNs: 1351-847X

Abstract

ABSTRACT: We investigate the relationship between insider trading and stock returns in firms with concentrated ownership. To this end, we employ data from East Asian countries which span the period January 2003 to May 2012. Consistent with the previous literature, we find a significantly negative relation between the selling activity of insiders and stock returns. However, contrary to studies which focus on highly developed markets, we find that the buying activity of insiders is also inversely related to future stock returns. Our analysis shows that top directors with higher ownership levels drive this result, suggesting that the trading activity of insiders is not always associated with profit-making motives and can be explained by their level of ownership. Furthermore, we demonstrate that a trading strategy which focuses solely on purchases made by top directors with high ownership levels yields negative returns. The paper has important implications for outside investors who mimic the trading activity of insiders with the aim to realise profits.