Insider Trading and Future Stock Returns in Firms With Concentrated Ownership Levels

Forthcoming in European Journal of Finance

33 Pages Posted: 25 Jun 2018

See all articles by Dimitris K. Chronopoulos

Dimitris K. Chronopoulos

University of St. Andrews - School of Management

David G. McMillan

University of Stirling

Fotios I. Papadimitriou

Business School, University of Aberdeen

Manouchehr Tavakoli

University of St. Andrews

Date Written: June 11, 2018

Abstract

We investigate the relationship between insider trading and stock returns in firms with concentrated ownership. To this end, we employ data from East Asian countries which span the period 2003:01-2012:05. Consistent with previous literature, we find a significantly negative relation between the selling activity of insiders and stock returns. However, contrary to studies which focus on highly developed markets, we find that the buying activity of insiders is also inversely related to future stock returns. Our analysis shows that top directors with higher ownership levels drive this result, suggesting that the trading activity of insiders is not always associated with profit making motives and can be explained by their level of ownership. Furthermore, we demonstrate that a trading strategy which focuses solely on purchases made by top directors with high ownership levels yields negative returns. The paper has important implications for outside investors who mimic the trading activity of insiders with the aim to realize profits.

Keywords: Insider Trading, Stock Returns, Economic Value, Trading Strategies

JEL Classification: G12, G14, C53

Suggested Citation

Chronopoulos, Dimitris K. and McMillan, David G. and Papadimitriou, Fotios I. and Tavakoli, Manouchehr, Insider Trading and Future Stock Returns in Firms With Concentrated Ownership Levels (June 11, 2018). Forthcoming in European Journal of Finance. Available at SSRN: https://ssrn.com/abstract=3194095

Dimitris K. Chronopoulos (Contact Author)

University of St. Andrews - School of Management ( email )

The Gateway
North Haugh
St. Andrews, Fife, Scotland KY16 9SS
United Kingdom

David G. McMillan

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Fotios I. Papadimitriou

Business School, University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Manouchehr Tavakoli

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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