The Effect of Voluntary versus Mandatory Adoption of Trading Policies on the Returns to Insider Trades

34 Pages Posted: 31 Jan 2015

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: November 23, 2014


The insider trading policy is an aspect of a firm’s internal governance which ensures corporate transparency is maintained and promotes investor confidence. We examine the effect of trading policies on the returns to trades conducted by corporate insiders in a period where the adoption of a policy is recommended versus another where the adoption is mandatory. In the former period, we find the requirement to notify the firm prior to trading does not lower profits to insider trades made on days outside the permitted trading windows. Where adoption of a policy is mandatory, returns to insider trades made during the restricted windows are higher and the requirement to notify prior to trading significantly reduces the profits. While all firms are required to adopt a policy, the adoption of a more restrictive trading policy is not “cheap talk”.

Keywords: Insider trading policy, permitted trading periods, restricted trading periods, trading returns, insider holdings, corporate governance

JEL Classification: G14, G34

Suggested Citation

Chang, Millicent and Wee, Marvin, The Effect of Voluntary versus Mandatory Adoption of Trading Policies on the Returns to Insider Trades (November 23, 2014). 2015 Financial Markets & Corporate Governance Conference. Available at SSRN: or

Millicent Chang

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 (Contact Author)

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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