Insider trading and future stock returns in firms with concentrated ownership levels
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We investigate the relationship between insider trading and stock returns in firms with concentrated ownership. To this end, we employ data from East Asian countries which span the period January 2003 to May 2012. Consistent with the previous literature, we find a significantly negative relation between the selling activity of insiders and stock returns. However, contrary to studies which focus on highly developed markets, we find that the buying activity of insiders is also inversely related to future stock returns. Our analysis shows that top directors with higher ownership levels drive this result, suggesting that the trading activity of insiders is not always associated with profit-making motives and can be explained by their level of ownership. Furthermore, we demonstrate that a trading strategy which focuses solely on purchases made by top directors with high ownership levels yields negative returns. The paper has important implications for outside investors who mimic the trading activity of insiders with the aim to realise profits.
Chronopoulos , D , McMillan , D G , Papadimitriou , F I & Tavakoli , M 2019 , ' Insider trading and future stock returns in firms with concentrated ownership levels ' , European Journal of Finance , vol. 25 , no. 2 , pp. 139-154 . https://doi.org/10.1080/1351847X.2018.1487312
European Journal of Finance
Copyright © 2018, Informa UK Limited, trading as Taylor & Francis Group. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1080/1351847X.2018.1487312
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