How Do Insider Trading Policies Affect the Information Content of Insider Trades?

29 Pages Posted: 12 Mar 2012

See all articles by Millicent Chang

Millicent Chang

The University of Western Australia; University of Wollongong

Marvin Wee

Australian National University (ANU); Financial Research Network (FIRN)

Date Written: March 11, 2012


We examine how firm-imposed trading policies affect returns to trades conducted by corporate insiders. A firm’s insider trading policy is a specific aspect of corporate governance which ensures and promotes ethical and responsible decision making so that investor confidence and corporate transparency is maintained. A detailed policy that reinforces the definition and reporting of trading by insiders and the enforcement of restricted trading periods is predicted to affect the firm’s information environment more than less detailed policies. Our results indicate lower returns to insider sales in such firms. However, when firms imposed restrictions on the timing of trades, insiders who buy shares within these restricted periods still earn higher returns compared to other purchases outside these times. These findings suggest that the various aspects of the trading policy affect the information environment and therefore returns to trades differently.

Keywords: trading policy, insider trading, corporate governance

JEL Classification: G14, G32

Suggested Citation

Chang, Millicent and Wee, Marvin, How Do Insider Trading Policies Affect the Information Content of Insider Trades? (March 11, 2012). Available at SSRN: or

Millicent Chang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522

Marvin Wee

Australian National University (ANU) ( email )

The Australian National University
College of Business and Economics
Canberra, 2601
+61 2 61250416 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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