Insiders’ Profits in the Australian Equities Market

35 Pages Posted: 3 May 2016 Last revised: 3 Jul 2023

See all articles by Henk Berkman

Henk Berkman

University of Auckland Business School

Reza Bradrania

University of South Australia - UniSA Business School

Tina Prodromou

The University of Wollongong

P. Joakim Westerholm

University of Sydney Business School

Date Written: September 23, 2022

Abstract

We investigate if directors of Australian companies can generate abnormal returns on their reported trades, if these abnormal returns are significant enough to be mimicked by outsiders, and if insider trades have an effect on returns of other investors. We find that insiders take advantage of their private information in stocks of larger corporations, but generally do not in medium and small capitalization firms, indicating that the insiders are attracted to the liquidity and a greater presence of uninformed traders in large stocks. Insiders are able to determine the value of their information by trading larger volumes and larger portions of their holdings when they have access to valuable information. We find that outsiders can make profitable trades net of transaction costs by following insiders’ sale trades in large and medium size firms, and otherwise result in net losses for outsiders. They accumulate on average a net abnormal profit of 4.17% after a year following their sale trade. We propose that the market quality can be improved with public access to good quality aggregated data on reported director insider trades.

Keywords: Insider Trading, CAAR

JEL Classification: G12, G14, G18

Suggested Citation

Berkman, Henk and Bradrania, Reza and Prodromou, Tina and Westerholm, P. Joakim, Insiders’ Profits in the Australian Equities Market (September 23, 2022). CIFR Paper No. 108/2016, Available at SSRN: https://ssrn.com/abstract=2773927 or http://dx.doi.org/10.2139/ssrn.2773927

Henk Berkman

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Reza Bradrania

University of South Australia - UniSA Business School ( email )

Adelaide, South Australia 5001
Australia

Tina Prodromou

The University of Wollongong ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

HOME PAGE: http://https://scholars.uow.edu.au/display/tina_prodromou

P. Joakim Westerholm (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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