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What Enhances Insider Trading Profitability?

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Author Info
Esther Brio ()
Javier Perote

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Abstract

This study analyses the factors triggering insider trading profitability. Since there is not much evidence on this topic in the continental-European context, we focus on the Spanish stock market. Our findings show that the main relevant factors (the timing ability of the insider, the transparency of the transaction and the level of free cash flow of the firm) are related to insiders’ opportunities behaviour, motivated by the lack of either managerial control within the firm or enforcement of insider trading regulation. The level of ownership concentration, the spread and the interaction between the size and the transparency of the transaction are other relevant factors, some of them tested for the first time in the insider trading literature. Copyright International Atlantic Economic Society 2007

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File URL: http://hdl.handle.net/10.1007/s11293-006-9060-8
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Publisher Info
Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 35 (2007)
Issue (Month): 2 (June)
Pages: 173-188
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:atlecj:v:35:y:2007:i:2:p:173-188

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Related research
Keywords: insider trading profitability; nominee holdings; ownership concentration; signalling; spread; G14;

References listed on IDEAS
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  1. B. Espen Eckbo & David C. Smith, 1998. "The Conditional Performance of Insider Trades," Journal of Finance, American Finance Association, vol. 53(2), pages 467-498, 04. [Downloadable!] (restricted)
  2. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
  3. Jain, Neelam & Mirman, Leonard J., 2002. "Effects of insider trading under different market structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 19-39. [Downloadable!] (restricted)
  4. Julan Du & Shang-Jin Wei, 2004. "Does Insider Trading Raise Market Volatility?," Economic Journal, Royal Economic Society, vol. 114(498), pages 916-942, October. [Downloadable!] (restricted)
    Other versions:
  5. Sylvain Friederich & Alan Gregory & John Matatko & Ian Tonks, 2002. "Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange," European Financial Management, Blackwell Publishing Ltd, vol. 8(1), pages 7-30. [Downloadable!] (restricted)
  6. Seyhun, H Nejat, 1990. "Do Bidder Managers Knowingly Pay Too Much for Target Firms?," Journal of Business, University of Chicago Press, vol. 63(4), pages 439-64, October. [Downloadable!] (restricted)
  7. Chakravarty, Sugato & McConnell, John J., 1999. "Does Insider Trading Really Move Stock Prices?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(02), pages 191-209, June. [Downloadable!]
    Other versions:
  8. Marshall, John M, 1974. "Private Incentives and Public Information," American Economic Review, American Economic Association, vol. 64(3), pages 373-90, June. [Downloadable!] (restricted)
  9. Esther B. Del Brio & Javier Perote & Julio Pindado, 2003. "Measuring the Impact of Corporate Investment Announcements on Share Prices: The Spanish Experience," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 30(5-6), pages 715-747. [Downloadable!] (restricted)
  10. Del Brio, Esther B. & Miguel, Alberto & Perote, Javier, 2002. "An investigation of insider trading profits in the Spanish stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 73-94. [Downloadable!] (restricted)
  11. Penman, Stephen H., 1985. "A Comparison of the Information Content of Insider Trading and Management Earnings Forecasts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(01), pages 1-17, March. [Downloadable!]
  12. Agrawal, Anup & Mandelker, Gershon N., 1990. "Large Shareholders and the Monitoring of Managers: The Case of Antitakeover Charter Amendments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 143-161, June. [Downloadable!]
  13. de Miguel, Alberto & Pindado, Julio, 2001. "Determinants of capital structure: new evidence from Spanish panel data," Journal of Corporate Finance, Elsevier, vol. 7(1), pages 77-99, March. [Downloadable!] (restricted)
  14. Walsh, David, 1999. "Uncertain Information Release and Informed Trading," Applied Financial Economics, Taylor and Francis Journals, vol. 9(1), pages 21-30, February. [Downloadable!] (restricted)
  15. Stoll, Hans R, 1989. " Inferring the Components of the Bid-Ask Spread: Theory and Empirical Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 115-34, March. [Downloadable!] (restricted)
  16. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," Journal of Business, University of Chicago Press, vol. 47(3), pages 410-28, July. [Downloadable!] (restricted)
  17. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September. [Downloadable!] (restricted)
  18. Garfinkel, Jon A. & Nimalendran, M., 2003. "Market Structure and Trader Anonymity: An Analysis of Insider Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(03), pages 591-610, September. [Downloadable!]
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