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Corporate legal insider trading in China: Performance and determinants

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  • Mazza, Paolo
  • Wang, Shiyu

Abstract

This article aims to study the performance of corporate legal insiders in the Chinese stock market from January 2014 to June 2019, in the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). We focus on buying transactions to avoid the cases where investors are forced to close their positions. Our results first show that insider transactions are associated with significant and positive excess returns above the SSE 180 and SZSE 100 market indexes. We also simulate random investors and compare their performance with the insiders and find that random investors outperform insiders. On average, insiders do not seem to have specific market timing skills in their purchase decisions, since they are not able to beat pure random investors. We further investigate the main drivers of the performance of insiders. Our results show that (1) the market return, the Sharpe ratio, unsystematic risk and GDP are the most influential factors, (2) the explanatory of the variables’ set is larger for SZSE than for SSE, and (3) the drivers’ estimates decrease as the holding period increases.

Suggested Citation

  • Mazza, Paolo & Wang, Shiyu, 2021. "Corporate legal insider trading in China: Performance and determinants," International Review of Law and Economics, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:irlaec:v:68:y:2021:i:c:s014481882100048x
    DOI: 10.1016/j.irle.2021.106024
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    Cited by:

    1. Mazza, Paolo & Ruh, Benjamin, 2022. "The performance of corporate legal insider trading in the Korean market," International Review of Law and Economics, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Insider trading; China; Performance; simulation; LAR;
    All these keywords.

    JEL classification:

    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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