Detecting the presence of insider trading via structural break tests
The occurrence of abnormal returns before the unscheduled announcement of price sensitive information is a potential indicator of insider trading. We identify insider trading with a structural change in the intercept of an extended capital asset pricing model. To detect such a change we introduce a consistent timing structural break test (CTSB) based upon a U-statistic type process. Unlike the traditional CUSUM test, the CTSB test provides a consistent estimator of the timing of a break in the intercept that occurs across the whole evaluation period. We apply our test to a rich data set covering 370 price sensitive announcements relating to FTSE 350 companies. Our test is able to detect potential insider trading far more reliably than the standard CUSUM test. We also show that the majority of suspected insider trading takes place in the 25Â days prior to the release of market sensitive information.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gombay Edit & Horváth Lajos & Husková Marie, 1996. "Estimators And Tests For Change In Variances," Statistics & Risk Modeling, De Gruyter, vol. 14(2), pages 145-160, February.
- Donald W.K. Andrews, 1990.
"Tests for Parameter Instability and Structural Change with Unknown Change Point,"
Cowles Foundation Discussion Papers
943, Cowles Foundation for Research in Economics, Yale University.
- Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
- Donald W.K. Andrews & Werner Ploberger, 1992.
"Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative,"
Cowles Foundation Discussion Papers
1015, Cowles Foundation for Research in Economics, Yale University.
- Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
- Vo, Minh T., 2008. "Strategic trading when some investors receive information before others," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 319-332.
- Park, Young S. & Lee, Jaehyun, 2010. "Detecting insider trading: The theory and validation in Korea Exchange," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2110-2120, September.
- Maddala,G. S. & Kim,In-Moo, 1999. "Unit Roots, Cointegration, and Structural Change," Cambridge Books, Cambridge University Press, number 9780521587822, October.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:2820-2828. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.