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Is Illegal Insider Trading a Sure Thing? Some New Evidence

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  • Yezhou Sha
  • Zixuan Zhang
  • Lanlan Liu

Abstract

Using a hand-collected database, we evaluate 328 illegal insider trading cases in the Chinese financial market from 2007 to 2018. Insiders, on average, make less profits than a single buy-and-hold strategy in the same period. This low performance is exacerbated when target firms are state-owned and with high institutional ownership. A firm’s size, 6-month past returns, debt ratio, and firm age have marginal impacts on the illegal returns. Two potential mechanisms derived from the US market are tested but they show divergent roles in our model setting. This study calls for alternative mechanisms in understanding market efficiency in emerging markets.

Suggested Citation

  • Yezhou Sha & Zixuan Zhang & Lanlan Liu, 2020. "Is Illegal Insider Trading a Sure Thing? Some New Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(12), pages 2929-2944, September.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:12:p:2929-2944
    DOI: 10.1080/1540496X.2020.1813469
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