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The information content of insider trading: Evidence from China

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  • Qiu, Ying
  • He, Hua
  • Xiao, Gang

Abstract

We examine the source of return predictability by insider trading in the setting of China’s stock market from 2005 to 2016. We find that insiders’ net share purchase contains favorable information about earnings beyond what is incorporated in the current stock market. We further show that the information contained in insiders trading is about operating rather than the non-operating component of earnings. We also find that firms with significant net share purchase are not associated with lower earnings quality afterwards. Overall, we provide evidence that insider trading delivers significant value-relevant information about earnings to the stock market.

Suggested Citation

  • Qiu, Ying & He, Hua & Xiao, Gang, 2018. "The information content of insider trading: Evidence from China," Finance Research Letters, Elsevier, vol. 26(C), pages 126-131.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:126-131
    DOI: 10.1016/j.frl.2017.12.007
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    Cited by:

    1. Zhao, Wanlong & Zhang, Wei & Xiong, Xiong & Zou, Gaofeng, 2021. "How insiders utilize their information advantages in their trading: Evidence from China," Finance Research Letters, Elsevier, vol. 42(C).
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    3. Mazza, Paolo & Wang, Shiyu, 2021. "Corporate legal insider trading in China: Performance and determinants," International Review of Law and Economics, Elsevier, vol. 68(C).
    4. M. Fevzi Esen & Emrah Bilgic & Ulkem Basdas, 2019. "How to detect illegal corporate insider trading? A data mining approach for detecting suspicious insider transactions," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 60-70, April.
    5. Ryu, Doojin & Yang, Heejin & Yu, Jinyoung, 2022. "Insider trading and information asymmetry: Evidence from the Korea Exchange," Emerging Markets Review, Elsevier, vol. 51(PA).
    6. Hanedar, Avni Önder & Yaldız Hanedar, Elmas & Göktan, Mehmet Gökhan, 2022. "Insider trading on Ottoman sovereign default: The Ottoman General Debt Bond at European and İstanbul financial markets," Finance Research Letters, Elsevier, vol. 47(PB).
    7. Sun, Fangcheng & Dutta, Shantanu & Zhu, Pengcheng & Ren, Wentao, 2021. "Female insiders' ethics and trading profitability," International Review of Financial Analysis, Elsevier, vol. 74(C).
    8. Kelly Shue & Richard R. Townsend, 2019. "Can the Market Multiply and Divide? Non-Proportional Thinking in Financial Markets," NBER Working Papers 25751, National Bureau of Economic Research, Inc.
    9. Nathan Zhenghang Zhu & Kun Tracy Wang & Mark Wilson, 2022. "The Effect of Conditional Management Earnings Forecast Mandates on Voluntary Disclosure and Analyst Forecast Properties," Abacus, Accounting Foundation, University of Sydney, vol. 58(3), pages 479-522, September.

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