تجارت داخلی فرصت طلبانه
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|13105||2013||16 صفحه PDF||سفارش دهید||9910 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Pacific-Basin Finance Journal, Volume 21, Issue 1, January 2013, Pages 1046–1061
This study proposes a simple framework to disentangle insiders' opportunistic trade from liquidity trade. An opportunistic trade occurs when the probability of informed trading and the speed of convergence to market efficiency increase in a month of an insider transaction. Using Thailand Securities Exchange Commission (SEC) insider filing reports during 2002 to 2008 we find an average insider achieves merely 0.64% and 0.32% in a month after an insider purchase and sell but an opportunistic portfolio yields approximately 2%.
Prohibiting insider trading is a common practice in almost all stock exchanges around the world. At least 22 developed countries and 80% of the 81 emerging markets had insider trading laws in place in 1998 (Bhattacharya and Daouk, 2002). A widespread existence of insider trading regulation around the world reflects a unanimous view of regulators that insider trading should be prohibited to protect outsiders and assure a level playing field. While regulators believe insiders exploit their superior private information through trading, the evidence in the academic literature on profitability of insider trading is far from being conclusive. Early evidence shows insider trading is informative because outsiders could achieve abnormal profit from observing insider trade information1. Aboody and Lev (2000) suggest the source of insiders' private information come from the ability to planned changes in the research and development budgets. In contrast, recent evidence is inconsistent with prior research. Lakonishok and Lee (2001) show limited market movement when insiders trade or report their trade to Securities Exchange Commission (SEC). Jeng et al. (2003) find insiders sales do not significantly earn abnormal returns. Eckbo and Smith (1998) show evidence in an insider friendly market such as the Oslo Stock Exchange (OSE), a conditional performance measures that closely tracks the true insider trades performance more than the traditional event study methodology reveal zero or negative abnormal insider returns. They conclude either OSE insiders possess little information or insider's benefits of control outweigh their benefits of trading. Are insiders really informed? An informed insider conveys superior and useful information to outsiders via their trades. If this is the case, one should expect price efficiency to increase following trading of an informed insider. Nevertheless, not all insider trades equally contain relevant information. An insider trade could be uninformative and does not improve price efficiency if the objective of such trade is for liquidity. We therefore disentangle opportunistic trades from liquidity trades. Only opportunistic insiders exploit their superior information to trade and contribute to price efficiency. Separating opportunistic insider from liquidity insider is highly relevant for the regulator to understand the impact of insider trade on the financial market. Only a few studies explicitly distinguish the role of opportunistic insider trade from liquidity insider trade. This study offers two contributions to the opportunistic insider trading literature. First we suggest a simple measure of opportunistic insider trade. The empirical measures of opportunistic insider are very useful for regulators to enforce the insider dealing legislation. We propose a measure of opportunistic insider trading that is consistent with a theoretical prediction of Leland (1992) who studied the consequence of insider trading under a rational expectation model with an endogeneous investment level. When insider trading is permitted, markets are less liquid as a result of asymmetric information and stock prices better reflect information. Aktas et al. (2008) show that price discovery happens sooner on insider trading days. Brunnermeier (2005) shows a trader who possesses a noisy signal of the forthcoming public announcement can use the information when he possesses it. The information leakage increases information asymmetry but makes the price more informative in the short-run. This suggests asymmetric information and informational price efficiency will jointly increase following a period that opportunistic insider trades. Our second contribution is the study of profitability of opportunistic insider trades. After classifying insider trades based on opportunistic and liquidity based motivation, we revisit the profitability of insider trading evidence. In particular we test the idea that outsiders who follow opportunistic insider trades should on average benefit from their trades. We compare profitability of opportunistic and liquidity based insider trades. All empirical studies on profitability of insider trade so far do not explicitly differentiate opportunistic trading from liquidity trading. The investigation of insider trading performance conditional on the degree of opportunistic trading should allow us to shed more light on to why some studies do not find insiders trading informative. We look at the profitability to insiders and to outsiders who construct the strategy using insider filing report. We ensure that the strategy is implementable in real time by considering insider transaction records in the form 59‐2 reports that are publicly available to investor by the end of month t − 1 when the value weighted opportunistic insider portfolio is formed. Selected stocks will remain in the portfolio for 1 month. The portfolio return is then measured over the month t. Furthermore Meulbroek (1992) reports that a number of litigation cases against insider share sale are much higher than insider share purchase. Hence we examine whether an opportunistic insider sale would achieve higher profit than an opportunistic insider purchase. The concept of “opportunistic insider trading” is close to the notion of “abnormal insider trading” which is used to isolate information-based component (e.g., Aktas et al., 2008 and Jenter, 2005). Three recent researches suggest the methodology to identify opportunistic insider trades. Rozanov (2008) proposes the ‘PricePattern’ as a proxy for opportunistic trading. The ‘PricePatterm’ is computed from the ratio of the 20-trading day cumulative market-adjusted gross return after an insider trade to the 20-trading day before an insider trade. The high value of ‘PricePattern’ indicates increased likelihood of opportunistic insider trade. Gunny et al. (2008) propose the ‘OIT’ as a measure of opportunistic insider trading. The OIT captures a reverse pattern in abnormal returns around an opportunistic insider trade. In particular, one should observe a negative abnormal return prior to an opportunistic insider stock purchase and positive abnormal return subsequently. While ‘PricePattern’ and ‘OIT’ measures are very useful to study the relation of corporate governance and opportunistic insider trading, both measures cannot be computed ex-ante because ‘PricePattern’ and ‘OIT’ measures assume that opportunistic insiders profit from their firm-specific information. Moreover, while such assumption appears reasonable, a rising tide could lift all boats. Market-wide aggregate information such as economy and business conditions can be informative about future return (Albuquerque et al., 2008), and there is a possibility that market-wide information may offset the firm-specific private information. Furthermore Eckbo and Smith (1998) use a comprehensive database that tracks movement of insiders in and out of the firms listed on the Oslo Stock Exchange to show that insiders' abnormal performance are zero or negative under the period of lax enforcement of insider trading regulation. In addition, Luo (2005) uses an event of mergers and acquisitions to show that market reaction to the announcement strongly predict whether firms later complete the deal implying that outsiders or market has more information than firms or insiders. These conflicting evidences cast doubt on the assumption that opportunistic insider measures should be associated with the abnormal returns of insider trade. On one hand, our methodology is consistent in spirit with the routine trading method of Cohen et al. (2012) because both approaches can ex-ante identify routine trades and opportunistic trades. Routine trades are trades that occur at the same months for a certain number of years. They show that approximately half of insider transactions are routine trades. Insiders could routinely trade for diversification or liquidity so a routine insider trading is not informative about future returns of the firm but an opportunistic insider trading portfolio yields value-weighted abnormal return of 82 basis points per month. On the other hand, routine trading approach requires current and historical insider identification so the routine trading approach is restrictive for newly listed firms or in the market that does not reveal insider's identification. While our opportunistic method requires additional data to compute the measures of informational efficiency and probability of informed trade, our approach does not require insider identification. Our approach is therefore particularly useful for the case of newly listed firms or when information about insider's identification is not available. This study aims to investigate opportunistic insider trading behavior in the Thai capital market. Most insider trading studies so far have been limited to the developed market, especially the US market which has a relatively high level of informational efficiency and rigorous governance mechanism. In contrast, the Stock Exchange of Thailand (SET) provides us with an emerging market environment where price may not efficiently reflect information; ownership structure is dominated by family-control; the possibility of wealth expropriation of outsiders from insiders and the relatively weak corporate governance compared to the US market. Thai authorities established an insider trading law in 1984 and enforced it in 1993 (Bhattacharya and Daouk, 2002). The SET is known ex-ante to be experiencing several insider trading scandals. The Securities and Exchange Commission (SEC) secretary-general Thirachai Phuvanatnaranubala admitted that the SET suffers from market abuses in terms of stock price manipulation and insider trading. In 2006 SEC fined four cases on insider trading to the amount of 20 million baht2. There is no sign that insider trading problems on SET have subsided. In a recent incident on June 2007, Paiboon Damrongchaitham a founder and chairman of GMM incurred a fine of 31.77 million baht because “the transactions used information related to GMM Media's takeover of Matichon that had not yet been publicly released”3. According to the World Bank governance indicator, Thailand receives a significantly lower score in terms of regulatory quality and rule of law as compared to the US4. Lemmon and Lins (2003) show that agency problems between insiders and outsiders are more severe in East Asian markets due to weak legal protection and lack of external governance mechanism. The dominance of family-control structure combined with relatively weak corporate governance in Thailand provides a platform suitable to study an opportunistic insider trading. We classify each insider trade into either an opportunistic or liquidity trade. The opportunistic insider trade is a transaction by an insider that increases information asymmetry and improves price efficiency. In each month, we calculate the percentage changes of information asymmetry and price efficiency of each stock relative to its past 12 months. We assign an insider trade as an opportunistic trade, if the percentage increases of information asymmetry and price efficiency in that trading month are in the top 30 percentile of all stocks in that month. We find our simple opportunistic insider framework perform relatively well. The opportunistic insider buy portfolio earns an average 2.03% per month and the opportunistic sell portfolio returns 2.08%. The typical insiders' buy and sell portfolios only yield 0.64% and 0.32% respectively. The long–short strategy that purchases stocks that opportunistic insider buys and shorts stocks that opportunistic insider sells significantly outperform the buy-and-hold strategy. The long–short opportunistic portfolio produces the 0.2809 Sharpe ratio compared to the 0.0644 from the buy-and-hold strategy. The Jensen alpha of the long–short portfolio is 3.48% per month which is highly significant. The magnitude of the outperformance is far higher than the possible transaction cost that might incur. The manipulation-proof portfolio measures (MPPM) of Ingersoll et al. (2007) show that the opportunistic insider portfolio statistically outperforms the buy-and-hold investment. Our simple opportunism proxy is useful for regulators and investors to address a wide range of issues. While this study addresses the issue regarding the profitability of opportunistic insiders, it is interesting to examine the relation of opportunistic trading and effectiveness of corporate governance mechanisms or managerial opportunism such as earning manipulation. We leave the latter topic for future research. The rest of the paper is organized as follows. Section 2 describes insider trading data, trading and stock characteristic data. Section 3 discusses opportunistic insider trading framework. Section 4 presents the stock market reactions and portfolio performance of insider trades. Section 5 concludes the study.
نتیجه گیری انگلیسی
Insiders trade for various reasons. One of the reasons is to exploit the inside information that may yet fully reflect on the price. In most countries, such activity is strictly prohibited and illegal. However, most insider trading law allow an insider to legally trade for a liquidity reason. This study proposes a simple framework to identify an opportunistic insider trade from all insider trades based on the measures of information asymmetry and speed of adjustment to market efficiency. An insider trade with an increase in both information asymmetry and price efficiency is labeled an opportunistic insider trade. In particular, we use an absolute order imbalance to proxy for information asymmetry and measure the speed of adjustment to market efficiency based on the R2 from the regression between midpoint return, lagged midpoint return and lagged order imbalance. We show the effectiveness of this simple methodology by measuring the out-of-sample performance of an opportunistic insider portfolio. Using the insider filing report form 59‐2 from the SEC Thailand from 2002 to 2008 report, we find that insiders on average trade large and growth stocks with high liquidity. However, there is no evidence that stock characteristics such as size, book to market ratio, volatility, trading value or quoted spread significantly influence trading decisions of either the opportunistic or liquidity motivated insiders. At the end of month t − 1, each insider trades are categorized either opportunistic insider trades or liquidity insider trade. We then compute the monthly return of a value weighted of opportunistic insider portfolio in month t. While both insider and liquidity motivated insider portfolios yield a monthly return that are below the average market return, an opportunistic insider portfolio significantly outperforms the market. The opportunistic buy portfolio earns an average monthly return of 2.03% and the opportunistic sell portfolio achieves 2.08% monthly return from February 2002 to January 2009. The superior performance of opportunistic insider portfolio suggests that an opportunistic insider trades identification using information asymmetry and price efficiency is effective. This opportunistic insider framework allows us to address several insider trading research topics. For instance, a regulator may be interested to investigate the role of corporate governance in controlling the opportunistic insider occurrences. One could examine the role of opportunistic insider trade in various corporate events such as earning announcement or takeover. We leave such topics for future research.