Innovative Efficiency and Insider Trading: Korea Evidence

19 Pages Posted: 22 Aug 2016

See all articles by Sujin Yi

Sujin Yi

Sungkyunkwan University, School of Business Administration, Students

Date Written: August 18, 2016

Abstract

This paper investigates whether corporate insiders earn excess profits by using private information unknown to outside investors or by trading their own firms’ stock based on contrarian belief.

Examining insider trades in the Korea stock market from 2005 to 2014, I document that both the use of private information and insiders’ contrarian investment strategy have effect on insider trading. This implies that insiders time the market with contrarian investment strategy and at the same time exploit private information to earn abnormal returns. I also find the asymmetric effect of insider trading.

Insiders trade shares more heavily when they possess good news about future firm value or feel that their companies are undervalued than when they possess bad news or feel that their companies are overvalued. Providing new evidence that insider trading profits are affected by both the use of private information and contrarian investment strategy, I suggest that regulators should consider both factors in the regulation of insider trading.

Keywords: insider trade, innovative efficiency, private information

JEL Classification: D82, G14

Suggested Citation

Yi, Sujin, Innovative Efficiency and Insider Trading: Korea Evidence (August 18, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2826029 or http://dx.doi.org/10.2139/ssrn.2826029

Sujin Yi (Contact Author)

Sungkyunkwan University, School of Business Administration, Students ( email )

206 International Hall
Seoul 110-745
Korea, Republic of (South Korea)

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