| In May 2018,the "nest case" of six fund companies including E Fund and Harvest that are suspected of insider trading has attracted attention of the financial industry.The fund managers of the companies involved in this case analysis the secret inside information spilled by secretaries of listed companies and made profits from it.In recent years,the wind of speculation has blown over the whole A-Share Market.Stock prices tend to fluctuate wildly in the short term.Sometimes,the share prices can even experience a one-day tour,(which means it can fluctuate sharply within one-day period).Usually,investors are over-relied on good or bad news,even fake news,(which can bring unpredictable loss.)While those insider traders who can obtain inside information may avoid major risks,even make excess returns.Nowadays,The Information leakage has led to a serious situation of China's Capital Market.The recent data illustrates that insider trading and trading which based on non-public information increase year by year,especially the inside trading involving institutional investors.Those institutional investors make full use of the talent advantage,information advantage and shareholding advantage to manipulate the A-Shares that further strengthen the fatigue and even cause pathological to the A-Share Market.Because of the difficulties in getting the data and looking for evidence,previous literatures mainly focused on inside trading from the perspective of insiders.However,there are few empirical studies on institutional investors trading with inside information in the stock market,especially the trading behaviors of institutional investors before the announcement of specific major inside information.The distribution of information among investors is obviously not symmetrical.Therefore,inside traders,such as major shareholders,definitely have information advantages.In opposite,external individual investors are at an information disadvantage.Meanwhile,some outside institutional investors are also likely to obtain private information from major shareholders and turn to information advantages.The asymmetry of information distribution may lead to the transfer of wealth from information disadvantage to advantage.(For instance),institutional investors who get inside information early can earn positive excess returns if they buy ahead of releasing good news.In a similar way,if they sell before bad news released,the losses will be stopped in time.Whereas,outside individual investors can get burned by information weakness,selling before good news or buying before bad.Previously studies on information disclosure(Cornell & Sirri,1992)(Meulbroek,1992)focused on the informed trading cases with clearly defined inside information to analyze the impact of informed trading on the stock market,such as stock price and liquidity.While,in recent years,more and more studies have attempted to look for evidence of informed transactions and information leakage through specific corporate events,such as Irvine,2007;Massa & Rehman,2008;Bodnaruk,2009;Christophe,2010;Jegadeesh & Tang,2010;Ivashina & Sun,2011;Khan & Lu,2013;Jian X.& Chao D.,2015 and Huang,2016.Due to the lack of data and the concealment of insider trading,as well as the difficulties in finding evidence in previous studies,there is no scholars have studied the information leaks and trading behaviors by institutional investors before the reduction of major shareholders,the disclosure of information and dividend distribution.Then,are there any information leaks before the announcements of these major events,and have institutional investors obtained inside information? If institutional investors trade in advance based on inside information,will this harm the interests of individual investors and result in wealth transfer? What are the factors influencing the trading behavior of institutional investors before the announcements of major events? This paper will solve the above three problems in turn.This paper is based on the normative research method,and then analyzes the theoretical basis of information leakage in the stock market by using the efficient market theory,information asymmetry theory and agent theory.Meanwhile,this paper also use the event-study method.Three events were studied respectively,including the A-share reduction event by major shareholders between 2012 and 2017,the performance prediction event,and the trading behavior of institutional investors and individual investors before and after the dividend distribution event as well as the excess stock return.Then three conclusions are drawn.First,if information leakage existed before the shareholding reduction of major shareholders,there will be informed trading behaviors among institutional investors.The wealth is systematically transferred from individual investors to institutional investors through constructing the income model.Then,it is found that the net purchases of institutional investors with inside information in advance before the reduction of major shareholders are negatively correlated with the size of the reduction of major shareholders and the assessment valuation of the stocks' reduction.Second,if information leakage existed before the performance forecast,there will be informed trading behaviors among institutional investors.The divulged performance forecast results in a systematic transfer of wealth from individual investors to institutional investors.Hence,it is found that the analysts' tracking analysis before performance forecast has a significant impact on the trading behavior of institutional investors,and that is more obvious in companies with low information transparency.Third,if information leakage existed before dividend distribution,there will be informed trading behaviors among institutional investors.Information leaks about dividend distributions have led to a systematic transfer of wealth from individual investors to institutional investors.Therefore,it is found that there is a positive correlation between the ratio of dividend,the degree of information asymmetry and the accumulated excess net buying of institutional investors.Furthermore,compared with stocks with low degree of information asymmetry,the influence of dividend ratio on the trading behaviors of institutional investors before the information announcements is more obvious in stocks with high degree of information asymmetry.The academic contributions of this paper are as follows.First,due to the limitations of data collected,previous studies on inside information mainly started from the perspective of insiders.However,This paper studied the trading behaviors of institutional investors before the announcement of inside information from the perspective of outsiders,looking for evidence of information leakage and institutional investors' obtaining of inside information in advance in China's stock market.Second,this study helps to understand whether information leakage is universal before the reduction of major shareholders' holdings,the sharp increase or decrease of business performance,and the distribution of large dividends.In addition,this paper adds references about information leakage in the stock market and informed transactions by institutional investors.Further,the consequence of information leakage in the stock market can be found,that is,the asymmetric distribution of information among investors results in the transfer of wealth from individual investors to institutional investors.In consequence,this study will enrich the understanding of conflicts of interest between institutional investors and individual investors.Third,the event study method is used to study the "accurate" trading behaviors of institutional investors before the three specific events,namely,the reduction of major shareholders' holdings,business performance forecast and dividend distribution,so as to eliminate the interference caused by institutional investors' professional judgment.This is different from the previous researches on behaviors of institutional investors which focused on the analysis of their abilities to select stocks through professional judgment.This study helps regulators find the direct evidence for institutional investors to obtain inside information in advance.Moreover,with the help of big data analysis,regulators can clearly determine whether information leakage and illegal trading events exist which can provide evidence for effective supervision and prevention. |
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