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A Case Study of Illegal Insider Trading — The Scandal of Vultures' Insider Trading

Author

Listed:
  • Yu Chuan Huang

    (Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, 2, Juoyue Road, Nantsu, Kaohsiung 811, Taiwan)

  • Shu Hui Chan

    (Department of Banking and Finance, Cheng Shiu University, 840, Chengcing Road, Niaosong Township, Kaohsiung County 833, Taiwan)

Abstract

The purpose of this paper is to look at the duration of the four-month period before the window dressing of Power Quotient International Co., LTD. (PQI) annual report between 2004 and 2005 was disclosed. The vultures sold 6,373,000 shares of PQI's stock based on the illegally obtained insider information. The empirical results indicate that the vultures' selling did not make PQI's stock price go down during insider period, but PQI's stock price did appear to rise and significantly exceeded the non-insider period. However, the proportion of vultures' selling is negatively correlated with the changes in PQI's stock price. The effect of vultures' selling is indifferent from the effect of non-vultures' selling during insider period. Market liquidity is also affected unfavorably in the presence of vultures' trading. Additionally, the newspaper's reports on PQI's positive or negative news significantly influence the investment decision of investors in Taiwan, and significantly influence the PQI's price changes and market liquidity.

Suggested Citation

  • Yu Chuan Huang & Shu Hui Chan, 2011. "A Case Study of Illegal Insider Trading — The Scandal of Vultures' Insider Trading," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 14(01), pages 81-99.
    • Handle: RePEc:wsi:rpbfmp:v:14:y:2011:i:01:n:s0219091511002147
    DOI: 10.1142/S0219091511002147
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    More about this item

    Keywords

    Insider trading; market liquidity; price discovery; market microstructure;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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