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Market Abuse Directive and Insider Trading: Evidence from Italian Tender Offers

Listed author(s):
  • Riccardo Ferretti

    ()

    (Department of Communication and Economics, and Cefin (Centro Studi Banca e Finanza), University of Modena and Reggio Emilia, Italy)

  • Pierpaolo Pattitoni

    (University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy)

  • Roberto Patuelli

    (University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy)

This study analyzes the effectiveness of the Market Abuse Directive (MAD) in reducing possible profits from insider trading during voluntary tender offers with the purpose of delisting initiated by controlling shareholders. Exploiting the quasi-experimental setting provided by the introduction of the MAD, our event-study analysis on the Italian market suggests that the new regulation did not produce appreciable effects on the magnitude of abnormal returns and volumes noted before the announcement of a tender offer. Multivariate econometric analyses based on regression and matching methods confirm this result. However, poolability tests reveal that the MAD has changed the manner in which corporate characteristics influence the capacity of insiders to make profit. We interpret our results considering the choice problem of the optimal amount of insider trading, when comparing the marginal costs and benefits of the illegal activity.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 16-16.

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Date of creation: Jun 2016
Handle: RePEc:rim:rimwps:16-16
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