IDEAS home Printed from https://ideas.repec.org/a/bla/jecsur/v37y2023i1p112-140.html
   My bibliography  Save this article

Filtration enlargement‐based time series forecast in view of insider trading

Author

Listed:
  • Luke M. Bennett
  • Wei Hu

Abstract

This survey reviews filtration enlargement models in view of insider trading. Although filtration enlargement aptly models insiders' informational advantage, the theoretical results have not attracted the attention of the empiricists, owing mainly to the lack of a bridge transforming the results to testable hypotheses, and/or the absence of econometrics method linking the hypotheses and the data. This survey provides a feasible avenue to estimate insider information and to detect trading from a relatively sophisticated theoretical model, where the dynamics of publicly available data (e.g., stock price) implies insider information before the information is completely digested. We complete the survey with an empirical illustration based on simulated data.

Suggested Citation

  • Luke M. Bennett & Wei Hu, 2023. "Filtration enlargement‐based time series forecast in view of insider trading," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 112-140, February.
    • Handle: RePEc:bla:jecsur:v:37:y:2023:i:1:p:112-140
    DOI: 10.1111/joes.12503
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joes.12503
    Download Restriction: no
    File URL: https://libkey.io/10.1111/joes.12503?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Utpal Bhattacharya & Hazem Daouk, 2002. "The World Price of Insider Trading," Journal of Finance, American Finance Association, vol. 57(1), pages 75-108, February.
    2. Julia Sawicki & Keshab Shrestha, 2008. "Insider Trading and Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3-4), pages 331-346.
    3. Sudipto Bhattacharya & Giovanna Nicodano, 2001. "Insider Trading, Investment, and Liquidity: A Welfare Analysis," Journal of Finance, American Finance Association, vol. 56(3), pages 1141-1156, June.
    4. Chakravarty, Sugato & McConnell, John J., 1999. "Does Insider Trading Really Move Stock Prices?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(2), pages 191-209, June.
    5. Keown, Arthur J & Pinkerton, John M, 1981. "Merger Announcements and Insider Trading Activity: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 36(4), pages 855-869, September.
    6. Damiano Brigo & Agostino Capponi & Andrea Pallavicini, 2014. "Arbitrage-Free Bilateral Counterparty Risk Valuation Under Collateralization And Application To Credit Default Swaps," Mathematical Finance, Wiley Blackwell, vol. 24(1), pages 125-146, January.
    7. Axel Grorud, 2000. "Asymmetric Information In A Financial Market With Jumps," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 641-659.
    8. Jonathan M. Karpoff & Daniel Lee, 1991. "Insider Trading Before New Issue Announcements," Financial Management, Financial Management Association, vol. 20(1), Spring.
    9. Monique Jeanblanc & Libo Li & Shiqi Song, 2018. "An enlargement of filtration formula with applications to multiple non-ordered default times," Finance and Stochastics, Springer, vol. 22(1), pages 205-240, January.
    10. repec:bla:jfinan:v:43:y:1988:i:1:p:129-41 is not listed on IDEAS
    11. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June.
    12. Campi, Luciano & Cetin, Umut & Danilova, Albina, 2013. "Explicit construction of a dynamic Bessel bridge of dimension 3," LSE Research Online Documents on Economics 45263, London School of Economics and Political Science, LSE Library.
    13. Cornell, Bradford & Sirri, Erik R, 1992. "The Reaction of Investors and Stock Prices to Insider Trading," Journal of Finance, American Finance Association, vol. 47(3), pages 1031-1059, July.
    14. Stefan Ankirchner & Steffen Dereich & Peter Imkeller, 2005. "The Shannon information of filtrations and the additional logarithmic utility of insiders," Papers math/0503013, arXiv.org, revised May 2006.
    15. Luciano Campi & Umut Çetin, 2007. "Insider trading in an equilibrium model with default: a passage from reduced-form to structural modelling," Finance and Stochastics, Springer, vol. 11(4), pages 591-602, October.
    16. Pierre Collin‐Dufresne & Vyacheslav Fos, 2016. "Insider Trading, Stochastic Liquidity, and Equilibrium Prices," Econometrica, Econometric Society, vol. 84, pages 1441-1475, July.
    17. Jayaraman, Narayanan & Frye, Melissa B & Sabherwal, Sanjiv, 2001. "Informed Testing around Merger Announcements: An Empirical Test Using Transaction Volume and Open Interest in Options Markets," The Financial Review, Eastern Finance Association, vol. 36(2), pages 45-74, May.
    18. repec:dau:papers:123456789/6880 is not listed on IDEAS
    19. Lee, Eun Jung & Eom, Kyong Shik & Park, Kyung Suh, 2013. "Microstructure-based manipulation: Strategic behavior and performance of spoofing traders," Journal of Financial Markets, Elsevier, vol. 16(2), pages 227-252.
    20. RenÈ Caldentey & Ennio Stacchetti, 2010. "Insider Trading With a Random Deadline," Econometrica, Econometric Society, vol. 78(1), pages 245-283, January.
    21. Fabrice Baudoin & Laurent Nguyen-Ngoc, 2004. "The financial value of a weak information on a financial market," Finance and Stochastics, Springer, vol. 8(3), pages 415-435, August.
    22. John Elliott & Dale Morse & Gordon Richardson, 1984. "The Association between Insider Trading and Information Announcements," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 521-536, Winter.
    23. Umut c{C}etin & Hao Xing, 2012. "Point process bridges and weak convergence of insider trading models," Papers 1205.4358, arXiv.org, revised Jan 2013.
    24. repec:dau:papers:123456789/4436 is not listed on IDEAS
    25. Givoly, Dan & Palmon, Dan, 1985. "Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 58(1), pages 69-87, January.
    26. Kohatsu-Higa, Arturo & Yamazato, Makoto, 2008. "Enlargement of filtrations with random times for processes with jumps," Stochastic Processes and their Applications, Elsevier, vol. 118(7), pages 1136-1158, July.
    27. Pierre Collin‐Dufresne & Vyacheslav Fos, 2016. "Insider Trading, Stochastic Liquidity, and Equilibrium Prices," Econometrica, Econometric Society, vol. 84(4), pages 1441-1475, July.
    28. Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-887, August.
    29. Meulbroek, Lisa K, 1992. "An Empirical Analysis of Illegal Insider Trading," Journal of Finance, American Finance Association, vol. 47(5), pages 1661-1699, December.
    30. Chen, Zhihong & Huang, Yuan & Kusnadi, Yuanto & John Wei, K.C., 2017. "The real effect of the initial enforcement of insider trading laws," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 687-709.
    31. Olmo, Jose & Pilbeam, Keith & Pouliot, William, 2011. "Detecting the presence of insider trading via structural break tests," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2820-2828, November.
    32. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.
    33. Baruch, Shmuel & Panayides, Marios & Venkataraman, Kumar, 2017. "Informed trading and price discovery before corporate events," Journal of Financial Economics, Elsevier, vol. 125(3), pages 561-588.
    34. Alex Boulatov & Thomas J. George, 2013. "Hidden and Displayed Liquidity in Securities Markets with Informed Liquidity Providers," The Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 2096-2137.
    35. Aktas, Nihat & de Bodt, Eric & Van Oppens, Hervé, 2008. "Legal insider trading and market efficiency," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1379-1392, July.
    36. Luciano Campi & Umut Çetin & Albina Danilova, 2013. "Equilibrium model with default and dynamic insider information," Finance and Stochastics, Springer, vol. 17(3), pages 565-585, July.
    37. Carpenter, Jennifer N & Remmers, Barbara, 2001. "Executive Stock Option Exercises and Inside Information," The Journal of Business, University of Chicago Press, vol. 74(4), pages 513-534, October.
    38. Bhattacharya, Utpal & Daouk, Hazem & Jorgenson, Brian & Kehr, Carl-Heinrich, 2000. "When an event is not an event: the curious case of an emerging market," Journal of Financial Economics, Elsevier, vol. 55(1), pages 69-101, January.
    39. Cetin, Umut & Xing, Hao, 2013. "Point process bridges and weak convergence of insider trading models," LSE Research Online Documents on Economics 48745, London School of Economics and Political Science, LSE Library.
    40. Julan Du & Shang-Jin Wei, 2004. "Does Insider Trading Raise Market Volatility?," Economic Journal, Royal Economic Society, vol. 114(498), pages 916-942, October.
    41. Iqbal, Zahid & Shetty, Shekar, 2002. "An investigation of causality between insider transactions and stock returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 41-57.
    42. Julia Sawicki & Keshab Shrestha, 2008. "Insider Trading and Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 331-346, April.
    43. Damodaran, Aswath & Liu, Crocker H, 1993. "Insider Trading as a Signal of Private Information," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 79-119.
    44. Campi, Luciano & Cetin, Umut & Danilova, Albina, 2011. "Dynamic Markov bridges motivated by models of insider trading," LSE Research Online Documents on Economics 31538, London School of Economics and Political Science, LSE Library.
    45. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    46. Rozeff, Michael S & Zaman, Mir A, 1988. "Market Efficiency and Insider Trading: New Evidence," The Journal of Business, University of Chicago Press, vol. 61(1), pages 25-44, January.
    47. Younes Kchia & Philip Protter, 2015. "Progressive Filtration Expansions Via A Process, With Applications To Insider Trading," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-48.
    48. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    49. Minenna, Marcello, 2003. "Insider trading, abnormal return and preferential information: Supervising through a probabilistic model," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 59-86, January.
    50. Imkeller, Peter & Pontier, Monique & Weisz, Ferenc, 2001. "Free lunch and arbitrage possibilities in a financial market model with an insider," Stochastic Processes and their Applications, Elsevier, vol. 92(1), pages 103-130, March.
    51. Acharya, Viral V. & Johnson, Timothy C., 2007. "Insider trading in credit derivatives," Journal of Financial Economics, Elsevier, vol. 84(1), pages 110-141, April.
    52. Hoyle, Edward & Hughston, Lane P. & Macrina, Andrea, 2011. "Lévy random bridges and the modelling of financial information," Stochastic Processes and their Applications, Elsevier, vol. 121(4), pages 856-884, April.
    53. David Aboody & John Hughes & Jing Liu, 2005. "Earnings Quality, Insider Trading, and Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 43(5), pages 651-673, December.
    54. John, Kose & Lang, Larry H P, 1991. "Insider Trading around Dividend Announcements: Theory and Evidence," Journal of Finance, American Finance Association, vol. 46(4), pages 1361-1389, September.
    55. Michael J. Fishman & Kathleen M. Hagerty, 1992. "Insider Trading and the Efficiency of Stock Prices," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 106-122, Spring.
    56. Seyhun, H Nejat & Bradley, Michael, 1997. "Corporate Bankruptcy and Insider Trading," The Journal of Business, University of Chicago Press, vol. 70(2), pages 189-216, April.
    57. Ali, Usman & Hirshleifer, David, 2017. "Opportunism as a firm and managerial trait: Predicting insider trading profits and misconduct," Journal of Financial Economics, Elsevier, vol. 126(3), pages 490-515.
    58. Jeffrey F. Jaffe, 1974. "The Effect of Regulation Changes on Insider Trading," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 93-121, Spring.
    59. Fidrmuc, Jana P. & Korczak, Adriana & Korczak, Piotr, 2013. "Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1915-1935.
    60. W. V. Harlow & John S. Howe, 1993. "Leveraged Buyouts and Insider Nontrading," Financial Management, Financial Management Association, vol. 22(1), Spring.
    61. Kerry Back & Shmuel Baruch, 2004. "Information in Securities Markets: Kyle Meets Glosten and Milgrom," Econometrica, Econometric Society, vol. 72(2), pages 433-465, March.
    62. Michael Manove, 1989. "The Harm from Insider Trading and Informed Speculation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 823-845.
    63. Back, Kerry, 1992. "Insider Trading in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    64. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 317-355.
    65. Campi, Luciano & Çetin, Umut & Danilova, Albina, 2011. "Dynamic Markov bridges motivated by models of insider trading," Stochastic Processes and their Applications, Elsevier, vol. 121(3), pages 534-567, March.
    66. Agrawal, Anup & Cooper, Tommy, 2015. "Insider trading before accounting scandals," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 169-190.
    67. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2015. "Exchange trading rules, surveillance and suspected insider trading," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 311-330.
    68. Finnerty, Joseph E, 1976. "Insiders and Market Efficiency," Journal of Finance, American Finance Association, vol. 31(4), pages 1141-1148, September.
    69. Anthony Boardman & Z. Stuart Liu & Marshall Sarnat & Ilan Vertinsky, 1998. "The effectiveness of tightening illegal insider trading regulation: the case of corporate takeovers," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 519-531.
    70. Robert J. Elliott & Monique Jeanblanc, 1999. "Incomplete markets with jumps and informed agents," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 50(3), pages 475-492, December.
    71. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 79-111.
    72. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    73. José Corcuera & Peter Imkeller & Arturo Kohatsu-Higa & David Nualart, 2004. "Additional utility of insiders with imperfect dynamical information," Finance and Stochastics, Springer, vol. 8(3), pages 437-450, August.
    74. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, 2003. "Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 453-471, May.
    75. Ahern, Kenneth R., 2017. "Information networks: Evidence from illegal insider trading tips," Journal of Financial Economics, Elsevier, vol. 125(1), pages 26-47.
    76. H. Nejat Seyhun, 1992. "Why Does Aggregate Insider Trading Predict Future Stock Returns?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1303-1331.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael R. King, 2009. "Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    2. Ryu, Doojin & Yang, Heejin & Yu, Jinyoung, 2022. "Insider trading and information asymmetry: Evidence from the Korea Exchange," Emerging Markets Review, Elsevier, vol. 51(PA).
    3. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.
    4. Pierce, Andrew T., 2024. "Capital-market effects of tipper-tippee insider trading law: Evidence from the Newman ruling," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    5. Aziz Simsir, Serif & Simsek, Koray D., 2022. "The market impact of private information before corporate Announcements: Evidence from Turkey," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    6. Tavakoli, Manouchehr & McMillan, David & McKnight, Phillip J., 2012. "Insider trading and stock prices," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 254-266.
    7. Ojah, Kalu & Muhanji, Stella & Kodongo, Odongo, 2020. "Insider trading laws and price informativeness in emerging stock markets: The South African case," Emerging Markets Review, Elsevier, vol. 43(C).
    8. Wisniewski, Tomasz P. & Bohl, Martin T., 2005. "The Information Content of Registered Insider Trading Under Lax Law Enforcement," International Review of Law and Economics, Elsevier, vol. 25(2), pages 169-185, June.
    9. Laurel Franzen & Xu Li & Oktay Urcan & Mark E. Vargus, 2014. "The Market Response To Insider Sales Of Restricted Stock Versus Unrestricted Stock," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(1), pages 99-118, February.
    10. Mazza, Paolo & Ruh, Benjamin, 2022. "The performance of corporate legal insider trading in the Korean market," International Review of Law and Economics, Elsevier, vol. 71(C).
    11. Arturo Bris, 2005. "Do Insider Trading Laws Work?," European Financial Management, European Financial Management Association, vol. 11(3), pages 267-312, June.
    12. Michael Firth & T. Y. Leung & Oliver M. Rui, 2011. "Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 14(03), pages 505-533.
    13. Ian Tonks, 2010. "Discussion of To Trade or Not To Trade: The Strategic Trading of Insiders around News Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3‐4), pages 408-421, April.
    14. Palan, Stefan & Stöckl, Thomas, 2017. "When chasing the offender hurts the victim: The case of insider legislation," Journal of Financial Markets, Elsevier, vol. 35(C), pages 104-129.
    15. Millicent Chang & Xiaolin Qian & Jing Yu & Yvonne See, 2017. "Does director trading change the information environment?," Australian Journal of Management, Australian School of Business, vol. 42(2), pages 205-229, May.
    16. Juha-Pekka Kallunki & Henrik Nilsson & Janne Peltoniemi, 2009. "Regulated and unregulated insider trading around earnings announcements," European Journal of Law and Economics, Springer, vol. 27(3), pages 285-308, June.
    17. José Manuel Corcuera & Giulia Di Nunno, 2018. "Kyle–Back’S Model With A Random Horizon," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-41, March.
    18. Lo, Keng-Hsin & Wang, Kehluh & Liao, Tsai-Ling, 2006. "Insider transfer trading of banking companies around exchange listing," Journal of Financial Intermediation, Elsevier, vol. 15(2), pages 215-234, April.
    19. Sadok El Ghoul & Omrane Guedhami & Robert Nash & He (Helen) Wang, 2022. "Economic policy uncertainty and insider trading," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 817-854, December.
    20. Skaife, Hollis A. & Veenman, David & Wangerin, Daniel, 2013. "Internal control over financial reporting and managerial rent extraction: Evidence from the profitability of insider trading," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 91-110.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jecsur:v:37:y:2023:i:1:p:112-140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0950-0804 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.