Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency

HKIMR Working Paper No.4/2009

35 Pages Posted: 2 Feb 2009

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

T. Y. Leung

affiliation not provided to SSRN

Oliver M. Rui

China Europe International Business School (CEIBS)

Date Written: January 29, 2009

Abstract

We examine legal insider trading activities by directors of companies listed on the Hong Kong Exchange over the period 1993 to 1999. One characteristic of insider trading in Hong Kong is the high frequency of transactions and the large dollar amounts involved. Inside purchases appear to signal and correct undervaluation and inside sales appear to signal and correct overvaluation. In contrast to research from Britain and the United States, insider sales are more informative than purchases. On average, insiders earn HK$91,297 per trade although outsiders who mimic insiders' transactions earn minimal returns. Many firms suffer from infrequent trading and our results are consistent with directors engaging in inside transactions so as to help create a market for the shares. In additional tests, we find that the frequency of insider trading is a function of information asymmetry.

Suggested Citation

Firth, Michael and Leung, T. Y. and Rui, Oliver M., Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency (January 29, 2009). HKIMR Working Paper No.4/2009, Available at SSRN: https://ssrn.com/abstract=1336454 or http://dx.doi.org/10.2139/ssrn.1336454

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

T. Y. Leung

affiliation not provided to SSRN

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

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