Strathprints Home | Open Access | Browse | Search | User area | Copyright | Help | Library Home | SUPrimo

Are trading bans effective? Exchange regulation and corporate insider transactions around earnings announcements

Hillier, David J. and Marshall, Andrew P. (2002) Are trading bans effective? Exchange regulation and corporate insider transactions around earnings announcements. Journal of Corporate Finance, 8 (4). pp. 393-410. ISSN 0929-1199

Full text not available in this repository. (Request a copy from the Strathclyde author)

Abstract

There is considerable controversy on the role of corporate insider trading in the financial markets. However, there appears to be a consensus view that some form of regulation concerning their activities should be imposed. One such constraint involves a trading ban in periods when corporate insiders are expected to be advantaged vis-à-vis the information flow. This paper directly tests whether constraints of this kind are effective in curtailing insider activity through a study of the trading characteristics of UK company directors. The London Stock Exchange Model Code (1977) imposes a two-month close period prior to company earnings announcements. We find that although the close period affects the timing of director trades, it is unable to affect their performance or distribution. Directors consistently earn abnormal returns irrespective of the period in which they trade. They tend to buy after abnormally bad earnings news and sell after abnormally good earnings news. Moreover, there are systematic differences in the trading patterns of directors surrounding interim and final earnings announcements. It appears that many corporate insiders have private information and exploit this in their trading activities. As a result, one can conclude that trading bans do not impose significant opportunity costs on the trading of corporate insiders.

Item type: Article
ID code: 3637
Keywords: insider trading, event studies, earnings announcements, regulation, trading bans, Finance, Finance, Economics and Econometrics, Business and International Management, Strategy and Management
Subjects: Social Sciences > Finance
Department: Strathclyde Business School > Accounting and Finance
Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 05 Jul 2007
    Last modified: 04 Sep 2014 11:23
    URI: http://strathprints.strath.ac.uk/id/eprint/3637

    Actions (login required)

    View Item