When Do Insiders Trade? Opportunistic versus Strategic Behaviour

34 Pages Posted: 1 Sep 2015 Last revised: 8 May 2016

See all articles by Jonathan A. Batten

Jonathan A. Batten

RMIT University

Igor Loncarski

University of Ljubljana School of Economics and Business

Peter G. Szilagyi

EDHEC Business School

Date Written: May 23, 2015

Abstract

Opportunistic inside-traders are known to trade specific financial contracts, such as options, to maximise the economic benefits arising from their private information. However, the recent conviction of inside-traders Kamay and Hill in the foreign exchange markets demonstrates more complex strategic behaviour: only certain information was traded; losses were generated to mask trading activities; and great care was exercised when placing trades to minimise losses that may arise from offsetting price movements due information shocks occurring in other financial markets. These results are therefore consistent with insiders acting strategically to maximise the value of their information, while also trying to minimise the risk of detection. The analysis also did not reveal leakage of inside information to other traders, likely due to the size of the markets in which the inside trading occurred. This suggests limitations to regulatory surveillance in over-the-counter markets and reinforces the importance of measures to prevent or discourage insider-trading prior to trade execution.

Keywords: foreign exchange markets, insider trading, market surveillance, structural break tests, regulation

JEL Classification: G14, G18, G28, G30

Suggested Citation

Batten, Jonathan A. and Lončarski, Igor and Szilagyi, Peter G., When Do Insiders Trade? Opportunistic versus Strategic Behaviour (May 23, 2015). Available at SSRN: https://ssrn.com/abstract=2653576 or http://dx.doi.org/10.2139/ssrn.2653576

Jonathan A. Batten (Contact Author)

RMIT University ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria
Australia

HOME PAGE: http://https://www.rmit.edu.au/contact/staff-contacts/academic-staff/b/batten-professor-jonathan

Igor Lončarski

University of Ljubljana School of Economics and Business ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Peter G. Szilagyi

EDHEC Business School ( email )

24 Av. Gustave Delory
Roubaix, 59057
France

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