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Corporate usage of financial derivatives, information asymmetry, and insider trading

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  • Hoa Nguyen
  • Robert Faff
  • Allan Hodgson

Abstract

This article investigates whether financial derivative usage by Australian corporations constitutes information asymmetry when proxied by profitable trading in the firms' securities by insiders. The findings show that insiders who trade in companies that employ derivatives make larger purchase returns compared to insiders in nonuser firms with regard to trading identity, trading intensity, variability of usage, volume of trading, and industry effects. A plausible explanation is that asymmetry is driven by derivative traders who undertake noisy transactions in firms where risk outcomes were previously transparent. Excess returns are confined to purchase transactions consistent with insiders primarily selling for noninformation reasons. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:25–47, 2010

Suggested Citation

  • Hoa Nguyen & Robert Faff & Allan Hodgson, 2010. "Corporate usage of financial derivatives, information asymmetry, and insider trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(1), pages 25-47, January.
    • Handle: RePEc:wly:jfutmk:v:30:y:2010:i:1:p:25-47
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    Cited by:

    1. Hassan Tanha & Michael Dempsey & Mena Labeb, 2018. "Derivatives Usage by Australian Industrial Firms: Pre-, during and post-GFC," Review of Economics & Finance, Better Advances Press, Canada, vol. 11, pages 31-39, February.

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