IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v35y2011i11p2820-2828.html
   My bibliography  Save this article

Detecting the presence of insider trading via structural break tests

Author

Listed:
  • Olmo, Jose
  • Pilbeam, Keith
  • Pouliot, William

Abstract

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.

Suggested Citation

  • Olmo, Jose & Pilbeam, Keith & Pouliot, William, 2011. "Detecting the presence of insider trading via structural break tests," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2820-2828, November.
  • Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:2820-2828
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S037842661100118X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Maddala,G. S. & Kim,In-Moo, 1999. "Unit Roots, Cointegration, and Structural Change," Cambridge Books, Cambridge University Press, number 9780521587822.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Keshab Bhattarai, 2015. "Financial Deepening and Economic Growth in Advanced and Emerging Economies," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 178-195, February.
    2. Pouliot, William, 2016. "Robust tests for change in intercept and slope in linear regression models with application to manager performance in the mutual fund industry," Economic Modelling, Elsevier, vol. 58(C), pages 523-534.
    3. repec:eee:jimfin:v:74:y:2017:i:c:p:69-87 is not listed on IDEAS
    4. Jose Olmo & William Pouliot, 2014. "Tests to Disentangle Breaks in Intercept from Slope in Linear Regression Models with Application to Management Performance in the Mutual Fund Industry," Discussion Papers 14-02, Department of Economics, University of Birmingham.
    5. Sahbi FARHANI, 2012. "Tests of Parameters Instability: Theoretical Study and Empirical Analysis on Two Types of Models (ARMA Model and Market Model)," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 246-266.
    6. J. James Reade & Sachiko Akie, 2013. "Using Forecasting to Detect Corruption in International Football," Working Papers 2013-005, The George Washington University, Department of Economics, Research Program on Forecasting.
    7. James Reade, 2014. "Detecting corruption in football," Chapters,in: Handbook on the Economics of Professional Football, chapter 25, pages 419-446 Edward Elgar Publishing.
    8. repec:exl:2manag:v:16:y:2015:i:1:p:77-89 is not listed on IDEAS
    9. repec:kap:jbuset:v:147:y:2018:i:4:d:10.1007_s10551-017-3435-4 is not listed on IDEAS
    10. John Goddard & Peter Sloane (ed.), 2014. "Handbook on the Economics of Professional Football," Books, Edward Elgar Publishing, number 14821, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jbf .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.