Should Regulators Ban Insider Trading? Evidence from Hong Kong

58 Pages Posted: 21 Jun 2017

See all articles by Zhihong Chen

Zhihong Chen

Hong Kong University of Science and Technology

Yuyan Guan

Nanyang Business School, Nanyang Technological University

Bin Ke

National University of Singapore

Date Written: June 21, 2017

Abstract

Using a corporate lobbying event that led to the unexpected reversal of a tough insider trading blackout regulation in Hong Kong, we examine whether tightening the restrictions of insider trading in family firms-dominated financial markets affects shareholder value. We find that firms more significantly affected by the new regulation were more likely to lobby against the implementation of the new regulation. The stock prices of lobbying firms reacted more positively to the reversal of the regulation than the stock prices of matched non-lobbying firms. We find no evidence that lobbying firms’ insider trades in the proposed new blackout window took advantage of insiders’ private information about forthcoming earnings news. In contrast, our findings suggest that lobbying firms’ insider trades in the proposed new blackout window were motivated to stabilize their firms’ stock prices in times of market uncertainty. Overall, our results suggest caution in imposing one-size-fits-all insider trading blackout regulation.

Keywords: Insider Trading Regulation, Blackout Window, Family Firms, Shareholder Value, Hong Kong

JEL Classification: G14, G18, G38

Suggested Citation

Chen, Zhihong and Guan, Yuyan and Ke, Bin, Should Regulators Ban Insider Trading? Evidence from Hong Kong (June 21, 2017). Available at SSRN: https://ssrn.com/abstract=2990226 or http://dx.doi.org/10.2139/ssrn.2990226

Zhihong Chen

Hong Kong University of Science and Technology ( email )

Clear Water Bay
Kowloon
Hong Kong
Hong Kong
(852)-2358-7574 (Phone)
(852)-2358-1693 (Fax)

Yuyan Guan (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Bin Ke

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-53
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

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