Are All Insiders on the Inside? Evidence from the Initiation of CDS Trading and Short Selling in the Financial Sector

35 Pages Posted: 20 Jan 2017 Last revised: 28 May 2019

See all articles by Thomas To

Thomas To

University of Sydney Business School

Sirimon Treepongkaruna

The University of Western Australia; Financial Research Network (FIRN)

Eliza Wu

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

Date Written: April 1, 2017

Abstract

We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm’s risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.

Keywords: Insider Trading, Short-Sales, SHO Regulation, Financial firms, CDS Trading

JEL Classification: G14, G18, G20, G30

Suggested Citation

To, Thomas and Treepongkaruna, Sirimon and Wu, Eliza, Are All Insiders on the Inside? Evidence from the Initiation of CDS Trading and Short Selling in the Financial Sector (April 1, 2017). Journal of International Financial Markets, Institutions and Money, Vol. 54, 114-129, 2018. Available at SSRN: https://ssrn.com/abstract=2901766 or http://dx.doi.org/10.2139/ssrn.2901766

Thomas To (Contact Author)

University of Sydney Business School ( email )

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

Sirimon Treepongkaruna

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
+61864887853 (Phone)
+61864881086 (Fax)

Financial Research Network (FIRN)

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

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

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
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

Register to save articles to
your library

Register

Paper statistics

Downloads
198
Abstract Views
846
rank
154,447
PlumX Metrics