Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector

Thomas Y. To; Sirimon Treepongkaruna; Eliza Wu

doi:10.1016/j.intfin.2017.05.003

Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector

Thomas Y. To, Sirimon Treepongkaruna, Eliza Wu

Research output: Contribution to journal › Article › peer-review

13 Citations (Scopus)

Abstract

We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm's risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.

Original language	English
Pages (from-to)	114-129
Number of pages	16
Journal	Journal of International Financial Markets, Institutions and Money
Volume	54
DOIs	https://doi.org/10.1016/j.intfin.2017.05.003
Publication status	Published - 1 May 2018

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title = "Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector",

abstract = "We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm's risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.",

keywords = "CDS trading, Financial firms, Insider trading, SHO regulation, Short-sales",

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T1 - Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector

AU - To, Thomas Y.

AU - Treepongkaruna, Sirimon

AU - Wu, Eliza

PY - 2018/5/1

Y1 - 2018/5/1

N2 - We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm's risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.

AB - We examine the impact of CDS trading and the lifting of short sales restrictions on the profitability of reported insider trades within US financial firms. We find evidence that executive directors possess significant insider knowledge about their firm's risk prior to the initiation of CDS trading. We also find that the profitability of insider trades are only reduced for non-executive directors after short selling is permitted, indicating that the executive directors possess more timely private information than short-sellers. Our results suggest that the introduction of CDS trading and short selling distinctly alters the ability of different types of insiders to extract rent on their private information.

KW - CDS trading

KW - Financial firms

KW - Insider trading

KW - SHO regulation

KW - Short-sales

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SN - 1042-4431

VL - 54

SP - 114

EP - 129

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

ER -

Are all insiders on the inside? Evidence from the initiation of CDS trading and short selling in the financial sector

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