The Study Of Insider Trading Behavior In Chinese Securities Market

With the accomplishment of the equity division reform and the implement of the new <Securities Act> (2006) and the new <Company Law> (2006), large number of legal insider trading behavior began to emerge in China. In general, insider trading is not necessarily illegal. However, with the consideration that insiders are involved in or close to the company’s daily decision-making activities, it’s widely taken that insiders possess information advantage relative to the external investors which makes this trading behavior cause lots of attention by not only the academia, but also the investment community and regulators.In China’s security market, whether the insider trading behavior can produce significant abnormal return? Whether it’s the senior management who most possess information advantage that has the strongest profitability? Would the firm-specific characteristics such as state-owned or non-state-owned and firm size have effects on insider trading? What involved in these questions are of great significance to market efficiency research, improvement of outsider investment strategy and public regulatory lssues.In this paper. insider trading events of all of China’s A shares from 1997 to 2011 are selected to discuss the price movements of related stocks. And cumulative average abnormal returns are also calculated after grouped by the type of insiders and firm-specific characteristics. The empirical research shows that even though there exists legislation, insider trading behavior in China still can produce significant abnormal return.First of all. on the whole, insiders are able to forecast the company’s stock price movements and affect the price movements of shares of the company subsequently, which means they’re with good timing ability. No matter buying or selling, they can always get significant abnormal return, and among whom the senior management possesses the strongest profitability. Furthermore, owing to the unique information advantage, the Chairman and CEO of the listed companies produce higher abnormal return than others. Moreover, with the consideration of political career, the profit motivation of the state-owned listed companies’Chairman and CEO is less than the non-state-owned listed company, and hence the abnormal return is smaller accordingly. At last, since the bigger is the state-owned listed companies’size, the bigger is the chance to get promoted, the degree of the biggest firms’ Chairman and CEO profit from or avoid loss through insider trading is the lowest.At the same time, the result shows that China’s securities market is not an effective market yet, overreaction still exists. Besides, in spite of that outsiders can improve their investment strategy through mimicking insiders’behavior theoretically, however, the delay of information disclosure of insider trading makes this hard to realize.