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Research_

Determinants of Insiders’ Trading Performance: Private Information, Network or Skill?

CIFR Research Project 2014-2015

Centre for International Finance and Regulation

Assoc Prof Joakim Westerholm; Dr Reza Bradrania; Dr Tina Viljoen; Prof Henk Berkman

Finance

Project Summary

The aim of this project is to test the following hypotheses in the Australian share markets:

  1. Do insiders who trade securities of the firm where they are registered as insiders earn significant abnormal profits?
  2. Do insiders that have a higher status within the network of corporate directors, based on current and past interlocking directorships, earn significantly higher abnormal profits than the insiders in a) (on trades in firms where they are registered as insiders)?
  3. Do outside household investors sustain significant abnormal losses when they trade in proximity of the insider trades in a) and b) above?

This research has important implications for insider trading regulation, and is expected to contribute to greater market efficiency, integrity and fairness. The outcomes will promote theoretical developments in the literature that ultimately will help policy makers to optimise the trade-off between protecting uninformed investors from trading with insiders, versus the ability of insiders to trade freely on public information. At the end of this project we aim to provide distinct policy recommendations regarding methods for detecting and measuring insider trading in three areas a) trades connected directly to the insider’s family, b) trades connected to directors with interlocking directorships with an insider and c) trades connected to employees of securities firms. Our previous research provides strong indications that increased transparency of all trades that directors and their network of past and present associates are involved with, will significantly reduce the profitability of trades based on inside information.

Funding

1 December 2014 - 31 July 2015

$60,124.00

Business School staff

Joakim Westerholm
Academic profile