| Recently, illegal insider trading of stock market in China are still occurringoften though the regulatory authorities are fighting against them severely. Illegalinsider trading will not only seriously hinder the normal order of security market,but will also bring harm to the benefits of investors. Our sample is based on the31illegal insider trading cases published by China Securities RegulatoryCommission until June2012. We study the statistical characteristics, pricebehavior, volume behavior and microstructure of these illegal insider tradingcases. The research is significant to help regulatory authorities set up monitoringsystem and help investors avoid stocks with high information risk.Firstly, we analyze the statistical characteristics of illegal insider tradingcases from three aspects. The recent development trends include that the lastingperiod of illegal insider trading is generally short. Indirect illegal insider tradingis occurring more and more often. The insider information is mainly aboutM&A. The regulatory measures can be improved.Secondly, we analyze the stock price behavior of illegal insider trading. It isfound that the market will tend to detect insider information when the illegalinsider trading lasts for a long time. In such cases, the stock price will changeprevious to the announcement date of significant information. Illegal insidertrading based on annual report information have a weaker impact on stock priceand smaller abnormal returns during illegal insider trading period than thosebased on M&A, capital increase or project investment information. Then the analysis on volumes of illegal insider trading cases finds that cumulativeaverage abnormal volume (CAAV) doesn’t increase apparently during illegalinsider trading period.Thirdly, we analyze volumes of bid under the aspect of microstructure. Theresult tells that both magnitude and volatility of bid volume increasesignificantly during illegal insider trading period, which indicates that the buy-side market is active and information leakage exists. We use the model ofProbability of Informed Based Trading (PIN) under the event study method totest the illegal insider trading cases in China. As a result, PIN doesn’t increasestatistically significant during illegal insider trading period so that PIN model isnot suitable to monitor illegal insider trading in China. The reason includes thatthe insider period is too short for PIN model to recognize or that there is reverseexternal information.Finally, we try to use moving PIN model to test illegal insider trading.Compared with previous PIN model, which tests only control period and illegalinsider trading period, moving PIN model continuously tests the change of PINvalue during illegal insider trading period. Moving PIN model captures theimpact of short-period trading on information asymmetry better. It is found thatmoving PIN value goes up to a peak during illegal insider trading period andcomes down after the announcement date. It can be concluded that theinformation asymmetry becomes more severely during illegal insider tradingperiod with more informed based trading. Besides, cases with larger illegalinsider trading volume are found to have a higher degree of informationasymmetry. |
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