Esther B. Del Brio

An investigation of insider trading profits in the Spanish stock market

Abstract This paper investigates the profitability and information content of insider trading in the Spanish stock market. Our results show that insiders earn excess profits when investing on corporate nonpublic information, while outsiders mimicking them fail to obtain those excess returns. The paper also investigates the relevance of a third party investing on the insider’s behalf. The study further focuses on some methodological aspects, such as the need to take estimation periods that are not affected by other events or by other prediction periods, and the need to allow volatility during insider trading events to have interday memory.

Gram–Charlier densities: a multivariate approach

This paper introduces a new family of multivariate distributions based on Gram–Charlier and Edgeworth expansions. This family encompasses many of the univariate semi-non-parametric densities proposed in financial econometrics as marginal of its different formulations. Within this family, we focus on the analysis of the specifications that guarantee positivity to obtain well-defined multivariate semi-non-parametric densities. We compare two different multivariate distributions of the family with the multivariate Edgeworth–Sargan, Normal, Students t and skewed Students t in an in- and out-of-sample framework for financial returns data. Our results show that the proposed specifications provide a reasonably good performance, and would therefore be of interest for applications involving the modelling and forecasting of heavy-tailed distributions.

Ownership structure and diversification in a scenario of weak shareholder protection

This work examines the influences of ownership concentration and insider ownership on corporate strategies for diversification within a scenario characterized by poor protection of shareholder interests. We find evidence of a quadratic relationship between ownership concentration and diversification, and a cubic relationship between diversification and insider ownership. These results point towards the high probability of both expropriation and entrenchment phenomena, respectively, in this kind of scenario. We also find that concentrated ownership requires high levels of insider ownership, in order to prevent negative externalities of diversification. Another result shows that entrenchment externalities affect diversification before they erode firm value, which suggests that for low levels of diversification, firm value is still not negatively affected. Additionally, our results show that control mechanisms, such as debt, director remuneration and compliance with codes of good practice, are negatively related to the level of diversification. Overall, our results confirm the theoretical relevance of agency theory in explaining managerial attitudes towards corporate strategy, i.e. diversification. Furthermore, companies characterized by deficiencies in shareholder legal protection, concentrated ownership structures and a higher likelihood of managers being entrenched, should focus on the correct functioning of corporate governance mechanisms.

Dividends and Market Signalling: An Analysis of Corporate Insider Trading

This study tests the multiple-signal theory of dividends of John Lang (1991) in the context of a European market. Our evidence shows that investors are more sensitive to insider trading signals than to signalled changes in existing dividends. In effect, the insider sales signal is universally understood as bad news. After controlling for the quality of a firms investment opportunities, investors are found to penalise dividend outflows by mature firms that exhibit more informed insider sales activity. Finally, we offer an innovative exploration of the role of earnings announcements in market reaction to the dividend signal.

Efectos de la regulación bursátil sobre la eficiencia de los mercados de valores. Comparación entre España y Reino Unido

RESUMEN Este trabajo presenta el primer estudio comparado sobre la rentabilidad obtenida por los directivos en sus operaciones con acciones propias en dos mercados de valores caracterizados por marcos legales diferentes: España y Reino Unido. Analiza si las diferencias en el grado de regulación y coerción del «abuso de mercado» producen diferencias en el grado de eficiencia del mercado. Esto permitirá expresarnos sobre el grado de efectividad de los denominados close periods o periodos de censura implantados en Reino Unido o sobre el mayor rigor en el cumplimiento de los plazos fijados por ley para el anuncio pùblico de las operaciones de directivos. Los resultados evidencian que las mayores restricciones establecidas en el Reino Unido no impiden que los directivos obtengan rentabilidades anormales, detectadas por igual en ambos países, pero sí contribuyen positivamente sobre la transparencia del mercado y la correcta formación de precios al favorecer la forma semi-fuerte de eficiencia.

Medición del insider trading en el mercado de valores español

Tlie insider trading has become a topic of major interest both in the context of the fi- nancial markets and nnancial research. DiiTerent episodes of recent actuality make necessaxy to deep into the analysis of both the insider trading and the ways of preventing it. The current study attempts to provide several mechanisms which may help uc to measure the investing activity of insiders. For this purpose, it focuses on teh analysis of dBerent insider tradign measurements produced in the in fi- nancial iiterature, it also helps LIS to interpret these signal and provide new figures on the behaviour of insiders in the Spanish markets. It represents the first evidence in this cense for our markets, but it &o implies some innovations with respect to previous studies in other markets. Our results recom- mend the use of insider trading measurements on which the ratio of insiders purchases volume minus sales volume are standardised by Werent variables. Among those variables, we nnd the nrm size and earningishare ratio.RESUMEN El insider trading o uso de información privilegiada en el ejercicio de operaciones bursátiles es un tema de rotunda actualidad, tanto en el contexto de los mercados de valores como en el de la investigación financiera. Distintos episodios de reciente actualidad hacen más preciso conocer a fondo qué se entiende por insider trading y cómo prevenirlo. El presente trabajo trata de ofrecer mecanismos para medir la actividad negociadora de los insiders. Para ello se centra en el análisis de las distintas medidas recogidas en la literatura financiera para representar el insider trading, analizando su sentido y dando cifras para el mercado español de cara a conocer el verdadero comportamiento de los insiders en nuestro mercado. Se trata de la primera evidencia en este sentido para el mercado español, pero además ofrece algunas innovaciones respecto a los estudios para otros mercados. Nuestros resultados se expresan a favor del uso de mediciones del insider trading en las que el ratio volumen de compras menos ventas realizadas por insiders se estandariza por distintas variables, entre las que cabe destacar el tamaño de la empresa y el ratio beneficio por acción.

Insider Trading and Corporate Governance in the Banking Sector. New Lessons on the Entrenchment Effect

This paper uses panel data estimation under the assumptions of the agency theory of insider trading to identify the factors enhancing bank insider trading. We conclude that the more entrenched the directors, the less prestigious the bank, the bigger the firm and the lower the charter values for high levels of ownership, the higher the intensity of insider trading activity. Thus, the emerging picture is of a scenario where insider trading activity is triggered by the absence of efficient control mechanisms, either external (regulators control the level of bank capitalization but it is not easy for them to also control other opportunistic behaviors) or internal (shareholders fail to control managers when managers’ stakes are very low or very high).

Legal and cultural factors as catalysts for promoting women in the boardroom

This study focuses on whether regulation as well as national cultures play significant roles in defining womens role in society. We are contributing to the existing debate by providing the first empirical analysis to calibrate which legal mechanisms and cultural dimensions are more efficient in achieving boardroom gender equality. We have highlighted the impact of regulation by distinguishing between those countries that have passed positive laws imposing gender quotas in the boardroom and those applying the ‘comply or explain’ recommendation in their good governance codes. We have monitored enforcement levels among countries and tested the validity of Hofstedes cultural factors in impacting on gender quotas. The emerging picture is that of gender diversity being triggered by the adoption of positive laws rather than by soft recommendations. Moreover, gender diversity policies are more commonly promoted in countries where governments, corporations and institutions are characterized by less masculinity and lower power distance.

Insider Trading, Earnings and Stock Based Compensation: A View to Speculation

We design a laboratory experiment to study the relation between earnings management and insider trading and their effects on the stock markets. The experiment simulates a market where one insider and three outsiders trade on the stocks of a company. We show that if the insider affects the stock price with her earnings announcements, then she will use this power and increase her capital gains. These earnings management practices not only induce price inefficiencies but also negatively affect the profits of the other traders. We also show that the managerial stock-based compensation worsens these effects, seriously increasing stock prices and manager’s profitability. We conclude that the lack of transparency in earnings management and the perverse incentives of the managerial compensation policies have an important role in generating price inefficiencies, bubbles and financial crises.

Estimating Semi-Nonparametric Densities by the Method of Moments

This article proposes the Method of Moments (MM) as a straightforward and accurate method to estimate financial returns densities when the Gram-Charlier asymptotic expansion is assumed as the data generating process. We show that MM provides very similar outcomes than Maximum Likelihood (ML) and overcomes both theoretical and empirical drawbacks of the latter, since it guarantees consistency regardless the density specification and also avoids possible convergence problems of the ML estimation algorithms. We compare the performance of both methods with an application to a large data set of daily returns of Dow Jones index.