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Aggregate Insider Trading and Stock Market Volatility in the UK

Author

Listed:
  • Guglielmo Maria Caporale
  • Kyriacos Kyriacou
  • Nicola Spagnolo

Abstract

This paper examines the relationship between aggregate insider trading (AIT) and stock market volatility using monthly data on insider transactions by UK executives in public limited companies for the period January 2002 - December 2020. More specifically, a Vector Autoregression (VAR) model is estimated and Impulse Response analysis as well as Forecast Error Variance Decomposition are carried out. The main finding is that higher AIT (more specifically, insider purchases) leads to a short-run increase in stock market volatility; this can be attributed to a combination of insiders manipulating the timing and content of the information they release and the revelation of new economy-wide information to the market. The UK being a well-regulated market, it is plausible that the main driver of the increase in stock market volatility should be the information effect. These results are shown to be robust to using alternative (direct) measures of AIT.

Suggested Citation

  • Guglielmo Maria Caporale & Kyriacos Kyriacou & Nicola Spagnolo, 2023. "Aggregate Insider Trading and Stock Market Volatility in the UK," CESifo Working Paper Series 10511, CESifo.
    • Handle: RePEc:ces:ceswps:_10511
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    References listed on IDEAS

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    More about this item

    Keywords

    aggregate insider trading; stock market volatility; VAR; impulse responses;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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