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Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector

Author

Listed:
  • To, Thomas Y.
  • Treepongkaruna, Sirimon
  • Wu, Eliza

Abstract

We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm’s risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.

Suggested Citation

  • To, Thomas Y. & Treepongkaruna, Sirimon & Wu, Eliza, 2018. "Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 54(C), pages 114-129.
    • Handle: RePEc:eee:intfin:v:54:y:2018:i:c:p:114-129
    DOI: 10.1016/j.intfin.2017.05.003
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    Citations

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    Cited by:

    1. Merl, Robert & Stöckl, Thomas & Palan, Stefan, 2023. "Insider trading regulation and shorting constraints. Evaluating the joint effects of two market interventions," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Mona Mortazian & Seyedeh Asieh H. Tabaghdehi & Bryan Mase, 2019. "Large Shareholding and Firm Value in the Alternative Investment Market (AIM)," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(2), pages 229-252, June.
    3. Pochara Arayakarnkul & Pattanaporn Chatjuthamard & Suntharee Lhaopadchan & Sirimon Treepongkaruna, 2022. "Corporate governance, board connections and remuneration," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(4), pages 795-808, July.
    4. Cumming, Douglas & Johan, Sofia, 2019. "Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement revisited," Finance Research Letters, Elsevier, vol. 31(C).
    5. Acheampong, Albert & Elshandidy, Tamer, 2021. "Does soft information determine credit risk? Text-based evidence from European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    6. Elshandidy, Tamer & Acheampong, Albert, 2021. "Does hedge disclosure influence cost of capital for European banks?," International Review of Financial Analysis, Elsevier, vol. 78(C).
    7. Ge-zhi Wu & Da-ming You, 2021. "Margin trading, short selling and corporate green innovation," Papers 2107.11255, arXiv.org, revised Aug 2021.
    8. repec:grz:wpsses:2021-03 is not listed on IDEAS

    More about this item

    Keywords

    Insider trading; Short-sales; SHO regulation; Financial firms; CDS trading;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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