Short-Run Returns Around the Trades of Corporate Insiders on the London Stock Exchange

24 Pages Posted: 24 Apr 2002

See all articles by Sylvain Friederich

Sylvain Friederich

London School of Economics & Political Science (LSE) - Financial Markets Group

Alan Gregory

University of Exeter - Xfi Centre; University of Exeter Business School

John Matatko

University of Exeter Business School

Ian Tonks

University of Bristol

Abstract

Previous work examined the long-run profitability of strategies mimicking the trades company directors in the shares of their own company, as a way of testing for market efficiency. The current paper examines patterns in abnormal returns in the days around these trades on the London Stock Exchange.

We find movements in returns that are consistent with directors engaging in short-term market timing. We also report that some types of trades have superior predictive content over future returns. In particular, medium-sized trades are more informative for short-term returns than large ones, consistent with Barclay and Warner's (1993) "stealth trading" hypothesis whereby informed traders avoid trading in blocks.

Another contribution of this study is to properly adjust the abnormal return estimates for microstructure (spread) transactions costs using daily bid-ask spread data. On a net basis, we find that abnormal returns all but disappear.

Suggested Citation

Friederich, Sylvain and Gregory, Alan and Matatko, John and Tonks, Ian, Short-Run Returns Around the Trades of Corporate Insiders on the London Stock Exchange. Available at SSRN: https://ssrn.com/abstract=308954

Sylvain Friederich (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7893 (Phone)
+44 20 7852 3580 (Fax)

HOME PAGE: http://fmg.lse.ac.uk/people/friederich/index.html

Alan Gregory

University of Exeter - Xfi Centre ( email )

University of Exeter
Xfi Building, Rennes Dr.
Exeter, EX4 3BZ
United Kingdom

University of Exeter Business School ( email )

Streatham Court
Xfi Building Rennes Dr.
Exeter, EX4 4JH
United Kingdom

John Matatko

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Ian Tonks

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
24
Abstract Views
2,358
PlumX Metrics