Title

Insider trading in Hong Kong : tests of stock returns and trading frequency

Document Type

Journal article

Source Publication

Review of Pacific Basin Financial Markets and Policies

Publication Date

9-1-2011

Volume

14

Issue

3

First Page

505

Last Page

533

Keywords

Insider trading; stock returns; trading frequency

Abstract

The main purpose of this paper is to examine the legal insider trading activities by directors of companies listed on the Hong Kong Exchange over the period 1993 to 1999. One characteristic of insider trading in Hong Kong is the high frequency of transactions and the large amounts of money involved. Inside purchases appear to signal and correct undervaluation and inside sales appear to signal and correct overvaluation. In contrast to research from Britain and the United States, insider sales are more informative than purchases. On average, insiders earn HK$91,297 per trade, while outsiders who mimic insiders' transactions earn minimal returns. Many firms suffer from infrequent trading and our results are consistent with directors engaging in inside transactions so as to help create a market for the shares. In additional tests, we find that the frequency of insider trading is a function of information asymmetry.

DOI

10.1142/S0219091511002317

Print ISSN

02190915

E-ISSN

17936705

Publisher Statement

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Full-text Version

Publisher’s Version

Recommended Citation

Firth, M., Leung, T. Y., & Rui, O. M. (2011). Insider trading in Hong Kong: Tests of stock returns and trading frequency. Review of Pacific Basin Financial Markets and Policies, 14(3), 505-533. doi: 10.1142/S0219091511002317