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Insider Trading In The Chinese Stock Market--An Empirical Study

Posted on:2004-05-15Degree:DoctorType:Dissertation
Country:ChinaCandidate:Y H HuangFull Text:PDF
GTID:1116360095462753Subject:Western economics
Abstract/Summary:PDF Full Text Request
The thesis is the first of its kind to provide a systematic study on the insider trading in the Chinese stock market from the perspective of law and economics, thus building a new and comprehensive structure for the topic.First, it gives a clear definition of insider trading and analyzes its key components. By studying regulations in the US, EU, Japan, and Hong Kong as well as those in China, it makes clear that the key components of insider trading are the significance and openness. Its prerequisite is the existence of insider information. Insider information utilization is only possible with the connection of the insider and insider information. The thesis also categorizes the insiders into four groups, the company insider, the regulatory government body insider, the market insider, and the insiders who illegally obtain the insider information. Trading based on insider information, tipping off, advising others in securities trading based on insider information are all forms of insider trading. Legal exceptions of insider trading may include the state's execution of its function by making use of insider information. The thesis also analyzes the inadequacy of the current Chinese law and regulations governing insider trading, suggesting that it will have an adverse impact on the practice of preventing and punishing such activities.Second, the thesis reviews the main studies in insider trading. It analyzes its impact on the operation of the stock market from four perspectives, the risk of market operation, the efficiency of information, the liquidity of the market and the stock price. It studies its influence on the interest of the insider, the outsider and the listed company. It also gives an analysis of the free market model, the regulating model, and the hybrid model.Third, the thesis gives an empirical study of the efficiency of the Chinese securities market. It assumes a white noises process for the stockindex and performs a statistical test against the weak form efficiency. A nonparametric test is also used to check the robustness. The test rejects weak form efficiency of the Chinese market. This study suggests that insiders are using insider information to achieve abnormal returns(beat the market). It also shows that efficiency study of the market may help in our understanding of insider trading and in our judgment in the legislation process.Four, the thesis analyzes a sample of Shanghai listed companies which had either a high dividend payout or an ownership transfer during 1998 to 2000. The sample is used to examine the extent of insider trading. After an event study that compares the abnormal return and turnover rate before and after, I conclude that there is significant insider trading and market manipulation. The stock dividend payout and net asset injection are selective activities, i.e. they are used to "generate" insider information in order to obtain abnormal returns. This reflects that regulation in the market is still week and the market manipulation is a severe problem. In addition, the thesis gives an analysis of the pattern of insider information spreading in the Chinese stock market.Five, the thesis also gives an event study on insider trading based on insider information of government policy changes. After comparing the trading volume and index changes before and after, it reveals the extent to which the government policies that will have significant impact on the stock market are leaked. The thesis suggests that such insider trading has become an important category in the market and that it severely damages the function of the stock market thus significantly weakening the role of the legal framework. Six, the thesis also tries to categorize the punishments handed out by the CSRC and provides empirical analysis of those cases. The results suggest that there is a clear reaction of the market before information becomes public, suggesting insiders may have buy in before information is public. In addition, compared with the empirical studies done on the sample of Shanghai...
Keywords/Search Tags:stock market, insider trading, market manipulation listed company
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