Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector

Thomas To, Sirimon Treepongkaruna and Eliza Wu

Journal of International Financial Markets, Institutions and Money, 2018, vol. 54, issue C, 114-129

Abstract: We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm’s risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.

Keywords: Insider trading; Short-sales; SHO regulation; Financial firms; CDS trading (search for similar items in EconPapers)
JEL-codes: G14 G18 G20 G30 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:54:y:2018:i:c:p:114-129

DOI: 10.1016/j.intfin.2017.05.003

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