Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency

Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 04/2009

Review of Pacific Basin Financial Markets and Policies, Volume 14, Issue 3, pp. 505-533, 2011

35 Pages Posted: 2 Feb 2009 Last revised: 6 Sep 2022

Date Written: January 29, 2009

Abstract

This working paper was written by Michael Firth (Lingnan University of Hong Kong), T. Y. Leung (City University of Hong Kong) and Oliver M. Rui (The Chinese University of Hong Kong).

We examine 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 dollar amounts 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 although 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.

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency (January 29, 2009). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 04/2009, Review of Pacific Basin Financial Markets and Policies, Volume 14, Issue 3, pp. 505-533, 2011, Available at SSRN: https://ssrn.com/abstract=1336454 or http://dx.doi.org/10.2139/ssrn.1336454

Hong Kong Institute for Monetary and Financial Research (Contact Author)

(HKIMR) ( email )

Units 1005-1011, 10th Floor, One Pacific Place
88 Queensway
Hong Kong
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
240
Abstract Views
1,666
Rank
231,674
PlumX Metrics