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Short‐run Returns around the Trades of Corporate Insiders on the London Stock Exchange
Author(s) -
Friederich Sylvain,
Gregory Alan,
Matatko John,
Tonks Ian
Publication year - 2002
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00174
Subject(s) - profitability index , stock exchange , stock (firearms) , financial economics , trading strategy , market efficiency , business , economics , monetary economics , efficient market hypothesis , stock market , econometrics , finance , mechanical engineering , paleontology , horse , engineering , biology
Previous work examined the long‐run profitability of strategies mimicking the trades company directors in the shares of their own company, as a way of testing for market efficiency. The current paper examines patterns in abnormal returns in the days around these trades on the London Stock Exchange. We find movements in returns that are consistent with directors engaging in short‐term market timing. We also report that some types of trades have superior predictive content over future returns. In particular, medium‐sized trades are more informative for short‐term returns than large ones, consistent with Barclay and Warner’s (1993) ‘stealth trading’ hypothesis whereby informed traders avoid trading in blocks. Another contribution of this study is to properly adjust the abnormal return estimates for microstructure (spread) transactions costs using daily bid‐ask spread data. On a net basis, we find that abnormal returns all but disappear.