Insiders’ Profits in the Australian Equities Market

37 Pages Posted: 3 May 2016

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Reza Bradrania

University of South Australia - UniSA Business School

Tina Viljoen

University of Sydney Business School

P. Joakim Westerholm

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: March 21, 2016

Abstract

In this paper we investigate if directors of Australian companies earn persistent profits on their reported trades, if these abnormal profits are significant enough to be mimicked by outsiders, and if these insider trades have an effect on returns of other investors. We find that insiders take advantage of their private information in stocks of larger corporations, but generally do not in medium and small capitalization firms, indicating that they insiders are attracted to the liquidity and a greater presence of uninformed traders in large stocks. Insiders appear able to determine the value of their information in by trading larger volume and larger portion of their holdings when they have access to valuable information. We find that outsiders can make profitable trades by following insider’s trades in large firms, but abnormal returns mimicking insiders in small and medium size firms are limited to insiders’ sell trades only, and otherwise result in losses for outsiders. Implications on market fairness and integrity are discussed and conclude that market quality can be improved with public access to good quality aggregated data on reported director insider trades.

Keywords: Insider Trading, CAAR

JEL Classification: G12, G14, G18

Suggested Citation

Berkman, Henk and Bradrania, Reza and Viljoen, Tina and Westerholm, P. Joakim, Insiders’ Profits in the Australian Equities Market (March 21, 2016). CIFR Paper No. 108/2016. Available at SSRN: https://ssrn.com/abstract=2773927 or http://dx.doi.org/10.2139/ssrn.2773927

Henk Berkman

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Reza Bradrania

University of South Australia - UniSA Business School ( email )

Adelaide, South Australia 5001
Australia

Tina Viljoen

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

P. Joakim Westerholm (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

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

HOME PAGE: http://www.firn.org.au

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