Stock price patterns around the trades of corporate insiders on the London Stock Exchange

Sylvain Friederich, Alan Gregory, John Matako and Ian Tonks

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper examines the patterns of security returns around the trades of corporate insiders in the shares of their own company. We find patterns in abnormal returns in the days around a director's trade that are consistent with directors engaging in short- term market timing: they sell (buy) after an increase (decline) in prices, and their trades are followed by a partial price reversal. This provides strong evidence that directors trade to exploit patterns in share prices. We also find positive gross, but not net, abnormal returns to imitating some of the trades of directors once transactions costs implicit in the bid-ask spread are taken into account. We also report that some types of trades have superior predictive content over future returns. In particular, we find that medium-sized trades are more informative for short-term returns than large ones, consistent with Barclay and Warner's (1993) "stealth trading" hypothesis.

Keywords: market efficiency; corporate insiders; insider trading; directors' trading; informed trading (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1999-09-01
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119116

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