Effect of insider trading on stock characteristics. Issue 2 (24th December 2020)

• Record Type: Journal Article
• Authors: Nanda, Sudipta Kumar; Barai, Parama
• Is Part Of: Asian journal of accounting research. Volume 6:Issue 2(2021)
• Page Start: 210
• Page End: 227
• Publication Date: 2020-12-24
• Subjects: Insider trading -- Event study method -- Stock characteristics -- Two-stage least square regression; G14 -- G18 -- G32; Accounting -- Asia -- Periodicals; Finance -- Asia -- Periodicals; 657
• DOI: 10.1108/AJAR-09-2020-0089
• Languages: English
• ISSNs: 2459-9700

Abstract

Abstract : Purpose: This paper investigates if investors consider legal insider trading data while making investment decisions. If any investment decision is based on insider transactions, then it will result in abnormal stock characteristics. The purpose of this paper is to investigate if insider trading affects stock characteristics like price, return and volume. The paper further investigates the effect on stock characteristics after the trade of different types of insiders and the relationship between abnormal return and abnormal volume. Design/methodology/approach: The study uses the event study method to measure the abnormal price, return and volume. Two-stage least square regression is used to investigate the relationship between abnormal return and abnormal volume. Findings: The insider trades affect price, return and volume. The results are identical for both buy and sell transactions. The trades of different types of insiders have diverse effects on stock characteristics. The trades of substantial shareholders give rise to the highest abnormal price and return, whereas the promoters' trades result in the highest abnormal volume. No relationship is detected between abnormal return and volume. Originality/value: A novel method to calculate the abnormal price is proposed. The effect of trading of all types of insiders on stock characteristics is analyzed. The relationship between abnormal return and abnormal volume, after an insider trade, is investigated.