The Impact Of Unobservable Firm And Insiders Characteristics On Insider Trading Performance

In recent years,the phenomenon of insider trading has been paid more and more attention.Insiders can get abnormal returns by saling and buying the shares of their own company from public disclosed data.Then which factors affect the abnormal returns of the insiders are concerned.Domestic research about insider trading performance are mainly focused on firm and trade characteristics,but variables affect insider trading that depicted in the literature have a samll explanatory power.One reason may be that the presence of omitted variables,so this paper research the unobservable firm and insider-level characteristics,that whether the firm fixed effects and individual fixed effects influence the insider trading performance and compare the influence of the two fixed effects.This paper chooses the behaviors of directors,supervisors and senior executives trading shares of their own companys in the secondary market which were disclosured by Shanghai and Shenzhen Stock Exchange from June 2007 to March 2016,validating the impact of unobservable firm and insider fixed effects on insider trading performance.The main conclusions of this paper is:firstly when both insider and firm fixed effects are controled,the explanatory power of the results is more than 60%in buying stock samples,and is about 50%in the selling stock samples.Therefore,when analyzing insider trading performance,we should control the insider and firm fixed-effects to avoid potential omitted-variable bias in estimated regression coefficients.Otherwise,it will generate a biased estimated conclusions.At the same time,we find that corporate insiders can get more cumulative abnormal returns in sell trade than that in buy trade,and this result is different from the foreign study.The position,such as chairman and general manager,has no significant effect on insider trading performance;and there is no clear correlation between the individual fixed effects and positions,such as chairman and general manager.Secondly,the paper tries to add personal dummy variable to separate insider and firm fixed effects,and calculate the relative importance of insider and firm fixed effects using David Hillier,Adriana Korczak,Piotr Korczak(2015)method,in order to compare the impact of insider and firm fixed effect on insider trading performance.We find that when insiders buy the shares of their own companies,the impact between the unobservable insider fixed effects and firm fixed effects on cumulative abnormal returns has little difference.when insiders sell the shares of their own companies,the impact of the unobservable insider fixed effects is greater than the firm fixed effects.Finally,based on the previous analysis of the text,this paper test which factors may influence individual fixed effects.The study found that compared to older insiders,individual fixed effects showed by younger insiders got more returns in the selling sample;there is no evidence that individual fixed effects showed by male insiders get more returns;and individual fixed effects showed by highly educated insiders get more returns trading returns can not be proved at a relatively high level of significance.The conclusions of this paper provide a new perspective about understanding the impact of insider and firm heterogeneity on insider trading in theory,and have important reference value about outside investors trading decisions and insider trading regulation in practice.