Profitability of insider trading in Europe: A performance evaluation approach

We use the largest cross-country sample of reported share transactions by corporate insiders to date to establish that insiders in the majority of European countries do not make statistically significant abnormal trading profits. This finding stands in contrast to the earlier evidence from the U.S....

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Bibliographic Details
Published inJournal of empirical finance Vol. 44; pp. 66 - 90
Main Authors Gębka, Bartosz, Korczak, Adriana, Korczak, Piotr, Traczykowski, Jędrzej
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.12.2017
Subjects
Europe
Insider trading
MAD
Portfolio
Profits
Insider trading
MAD
G11
Europe
Portfolio
Profits
G14
G18
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Summary:We use the largest cross-country sample of reported share transactions by corporate insiders to date to establish that insiders in the majority of European countries do not make statistically significant abnormal trading profits. This finding stands in contrast to the earlier evidence from the U.S. The result holds across subsamples of firms with different characteristics. Furthermore, the introduction of the European Union Market Abuse Directive (MAD) had a mixed impact on the frequency and volume of insider trading across countries but generally did not affect profits of insider-mimicking portfolios. We build on the heterogeneity of our sample countries to show that several country-level regulatory, economic and cultural factors are linked with the level of insider profits which can explain why the profitability of insider trading differs starkly across countries. •Performance of portfolios mimicking trades of corporate insiders across Europe is analyzed.•Insiders in the majority of countries do not make significant abnormal trading profits.•Introduction of the Market Abuse Directive had no impact on insider profits.•Several regulatory, economic and cultural factors can explain insider profits.
ISSN:0927-5398
1879-1727
DOI:10.1016/j.jempfin.2017.08.001