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Stock Price Around the Trades of Corporate Insider on the London Stock Exchange

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Listed:
  • John Matatko
  • Alan Gregory
  • Ian Tonks

    ()

  • Sylvain Friederich

    ()

Abstract

This paper examines the patterns of security returns around trades by corporate insiders in the shares of their own company. We find patterns in abnormal returns in the days around a directors trade that are consistent with directors engaging in short-term market timing: they sell (buy) after an increase (decline) in prices, and their trades are followed by a partial price reversal. This provides strong evidence that directors trade to exploit patterns in share prices. We also find positive gross, but not net, abnormal returns to imitating some of the trades of directors once transactions costs implicit in the bid ask spread are taken into account. We also report that some types of trades have superior predictive content for future returns. An important difference with previous work on this topic is that we find that medium-sized trades are more informative for short-term returns than large ones, consistent with Barclay and Warners (1993) ¶stealth trading¶ hypothesis.

Suggested Citation

  • John Matatko & Alan Gregory & Ian Tonks & Sylvain Friederich, 1999. "Stock Price Around the Trades of Corporate Insider on the London Stock Exchange," FMG Discussion Papers dp332, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp332
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp332.pdf
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    References listed on IDEAS

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    12. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
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    14. Barclay, Michael J. & Warner, Jerold B., 1993. "Stealth trading and volatility : Which trades move prices?," Journal of Financial Economics, Elsevier, vol. 34(3), pages 281-305, December.
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    Cited by:

    1. Emilio Barucci & Carlo Bianchi & Alberto Manconi, 2006. "Internal dealing regulation and insiders’ trades in the Italian financial market," European Journal of Law and Economics, Springer, vol. 22(2), pages 107-119, September.

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