Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

Dickgiesser Sebastian and Christoph Kaserer
Additional contact information
Dickgiesser Sebastian: Center for Entrepreneurial and Financial Studies (CEFS),Munich, Germany

German Economic Review, 2010, vol. 11, issue 3, 302-335

Abstract: Several studies have emphasized a slow price adjustment to reported insider trades for Germany. The results presented in this paper, though, show that this is mainly caused by a subset of high arbitrage risk stocks. In fact, the abnormal return difference between the quintiles of stocks with highest and lowest idiosyncratic risk is in the range of 2.99-4.90% over a 20-day interval. These results are robust even in the context of a joint generalized least squares approach. By developing a simple zero-investment arbitrage trading strategy mimicking insider trades, it turns out that such a trading strategy, in most cases, generates significant positive returns as long as transaction costs are neglected. However, the out-performance disappears in all risk quintiles, if bid/ask spreads are taken into account.We conclude that the market’s under-reaction to reported insider trades can mainly be explained by the cost of risky arbitrage and is therefore not exploitable.

Keywords: Insider trading; directors’ dealings; arbitrage risk; market efficiency (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/j.1468-0475.2009.00476.x (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Journal Article: Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:germec:v:11:y:2010:i:3:p:302-335

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ger/html

DOI: 10.1111/j.1468-0475.2009.00476.x

Access Statistics for this article

German Economic Review is currently edited by Peter Egger, Almut Balleer, Jesus Crespo-Cuaresma, Mario Larch, Aderonke Osikominu and Georg Wamser

More articles in German Economic Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().