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The informational content of insider trading disclosures: empirical results for the Polish stock market

  • Henryk Gurgul


  • Paweł Majdosz


In this paper, we try to answer the question as to whether insider trading disclosures convey valuable information to market participants, valuable in the sense of the profitability of an investment strategy that faithfully mirrors insider behaviour. Our interest in this subject is limited to the case of announcements concerning insider transactions issued over a 6 year-period on the Warsaw Stock Exchange (WSE). Initially, we use event study methodology to check whether insider trading disclosures are accompanied by a performance of stock returns as well as trading volume. Two different models generating expected returns (expected volume) are employed to verify the robustness of our results. The first of these is the regime switching model, with the results then being recalculated by using a GARCH-type model which seem to be most useful for dealing with some of the inconvenient statistical properties of stock return and trading volume data. Afterwards, a technique based on the reference return strategies is used to examine whether or not outsiders who imitate insider behaviour are able to profit from it. The major findings are as follows: firstly, announcements about the sale of stocks by insiders convey no information to market participants. Secondly, a statistically significant market response to insider disclosures of purchases of stocks in their own company can be observed in the three days prior to the announcement release for both return as well as trading volume series, and finally, outsiders who purchased stocks previously bought by insiders experience negative returns whereas outsiders disposing of stocks previously sold by insiders earned a return of 8.57% over the 6 month-period. Copyright Springer-Verlag 2007

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Article provided by Springer in its journal Central European Journal of Operations Research.

Volume (Year): 15 (2007)
Issue (Month): 1 (March)
Pages: 1-19

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Handle: RePEc:spr:cejnor:v:15:y:2007:i:1:p:1-19
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  1. Simon Gervais & Ron Kaniel & Dan Mingelgrin, . "The High Volume Return Premium," Rodney L. White Center for Financial Research Working Papers 01-99, Wharton School Rodney L. White Center for Financial Research.
  2. Seyhun, H Nejat, 1988. "The Information Content of Aggregate Insider Trading," The Journal of Business, University of Chicago Press, vol. 61(1), pages 1-24, January.
  3. Lin, Ji-Chai & Howe, John S, 1990. " Insider Trading in the OTC Market," Journal of Finance, American Finance Association, vol. 45(4), pages 1273-84, September.
  4. Sharpe, William F., 1967. "Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 2(02), pages 76-84, June.
  5. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  6. Josef Lakonishok & Inmoo Lee, 1998. "Are Insiders' Trades Informative?," NBER Working Papers 6656, National Bureau of Economic Research, Inc.
  7. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
  8. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  9. Jaffe, Jeffrey F, 1974. "Special Information and Insider Trading," The Journal of Business, University of Chicago Press, vol. 47(3), pages 410-28, July.
  10. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
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