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Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency

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Author Info
Michael Firth (Lingnan University of Hong Kong)
T. Y. Leung (City University of Hong Kong)
Oliver M. Rui (The Chinese University of Hong Kong)

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Abstract

We examine legal insider trading activities by directors of companies listed on the Hong Kong Exchange over the period 1993 to 1999. One characteristic of insider trading in Hong Kong is the high frequency of transactions and the large dollar amounts involved. Inside purchases appear to signal and correct undervaluation and inside sales appear to signal and correct overvaluation. In contrast to research from Britain and the United States, insider sales are more informative than purchases. On average, insiders earn HK$91,297 per trade although outsiders who mimic insiders' transactions earn minimal returns. Many firms suffer from infrequent trading and our results are consistent with directors engaging in inside transactions so as to help create a market for the shares. In additional tests, we find that the frequency of insider trading is a function of information asymmetry.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 042009.

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Length: 35 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:hkm:wpaper:042009

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