Research On Excess Earnings By Relatives Of Insiders In Shenzhen-main-board-listed Companies

With the rapid development of capital market in China, all kinds of regulatory measures are also constantly improved. Insider trading regulation laws are also becoming perfect gradually, so insider stock trading is developing toward standardization. But in recent years, insiders’ relatives have traded stocks more frequently than insiders themselves. This makes ordinary investors doubt whether insiders’ relatives stock trading is an alternative way of insider trading, and whether their relatives can get excess returns in stock trading. If the answer is yes, such a regulatory gray area of insiders’ relatives stock trading will be exposed to the public. Therefore, regulators should make relevant policies and regulations to restrict and standardize that field, and to maintain impartiality and fairness of the capital markets.This paper assumes that the capital market in China is at the weak-form efficient stage against the theoretical background of the efficient market hypothesis, so the internal information can bring excess returns. It also holds that the insiders’ relatives and ordinary outside investors own different information based on the theory of information asymmetry. It also introduces the game theory and correlation models, paving the way for the later analysis of the reason why insiders’ relatives get excess earnings. What’s more, it defines the concept of insiders’ relatives stock trading and illustrates similarities and differences between insider trading and insiders’ relatives trading. The situation of insiders’ relatives stock trading in 2014 is described then. Using the event study method, the paper compares the gains which insiders’ relatives get and those which ordinary investors obtain, checks excess returns by T value test, and concludes that insiders’ relatives can get excess returns indeed. Furthermore, it uses the multiple regression equation to analyze factors which influence the excess return and comes to the conclusions:(1)The choice of trading period has an influence on excess return.(2)The positions of insiders in the companies will affect the relatives’ transaction earnings.(3)The effect of governance of listed companies will significantly affect the insiders’ relatives’ excess returns.(4)The identity of the insiders’ relatives will have an effect on excess returns. After coming to conclusion through empirical analysis, the paper analyzes reasons on the basis of game models. If regulators strengthen their supervision, it concludes, insiders relatives will give up their improper trading. Finally, relevant policies and suggestions are provided:(1)Expand the scope of supervision, strengthen the information disclosure and establish a unified trading disclosure format.(2)Establish a stock trading platform for insiders’ relatives to have a pre-announcement of trading, and focus on short-swing and sensitive period trading.(3)Encourage insiders’ other relatives to disclosure their stock trading behaviors voluntarily.(4)Strengthen the supervision of listed companies, and impose severer penalties on illegal trading behaviors.