The informational content of insider trading disclosures: empirical results for the Polish stock market |
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Authors: | Henryk Gurgul Pawe? Majdosz |
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Institution: | (1) Department of Applied Mathematics, University of Science and Technology, ul. Al. Mickiewicza 30, 30-059 Kraków, Poland;(2) Department of Quantitative Methods, School of Economics and Computer Science, ul. Św. Filipa 17, 31-150 Kraków, Poland |
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Abstract: | In this paper, we try to answer the question as to whether insider trading disclosures convey valuable information to market
participants, valuable in the sense of the profitability of an investment strategy that faithfully mirrors insider behaviour.
Our interest in this subject is limited to the case of announcements concerning insider transactions issued over a 6 year-period
on the Warsaw Stock Exchange (WSE). Initially, we use event study methodology to check whether insider trading disclosures
are accompanied by a performance of stock returns as well as trading volume. Two different models generating expected returns
(expected volume) are employed to verify the robustness of our results. The first of these is the regime switching model,
with the results then being recalculated by using a GARCH-type model which seem to be most useful for dealing with some of
the inconvenient statistical properties of stock return and trading volume data. Afterwards, a technique based on the reference
return strategies is used to examine whether or not outsiders who imitate insider behaviour are able to profit from it. The
major findings are as follows: firstly, announcements about the sale of stocks by insiders convey no information to market
participants. Secondly, a statistically significant market response to insider disclosures of purchases of stocks in their
own company can be observed in the three days prior to the announcement release for both return as well as trading volume
series, and finally, outsiders who purchased stocks previously bought by insiders experience negative returns whereas outsiders
disposing of stocks previously sold by insiders earned a return of 8.57% over the 6 month-period.
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Keywords: | G14 |
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