Directors' dealings, market efficiency, and strategic insider trading in the German stock market [Elektronische Ressource] / Carl Philipp Sebastian Dickgießer

Carl Philipp Sebastian Dickgießer

Sujets

• Management

Informations

• Publié par: technische_universitat_munchen
• Publié le: 01 janvier 2010
• Nombre de lectures: 70
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

TECHNISCHE UNIVERSITAT MUNCHEN
Lehrstuhl fur Finanzmanagement und Kapitalmarkte
Directors’ Dealings, Market E ciency, and Strategic
Insider Trading in the German Stock Market
Carl Philipp Sebastian Dickgie er, M.Sc.
Vollstandiger Abdruck der von der Fakultat fur Wirtschaftswissenschaften der Technischen Universitat
Munchen zur Erlangung des akademischen Grades eines
Doktors der Wirtschaftswissenschaften (Dr. rer. pol.)
genehmigten Dissertation.
Vorsitzender: Univ.-Prof. Dr. Isabell M. Welpe
Prufer der Dissertation:
1. Univ.-Prof. Dr. Christoph Kaserer
2. Univ.-Prof. Dr. Gunther Friedl
Dissertation wurde am 03.05.2010 bei der Technischen Universitat Munchen eingereicht und durch die
Fakultat fur Wirtschaftswissenschaften am 07.07.2010 angenommen.Abstract
This dissertation studies two distinct aspects of directors’ dealings in the German stock market. First, it
is empirically examined if insiders trade strategically around news announcements. The results show that
while insiders do trade prior to ad-hoc announcements, trading activity increases in particular after news
events. This suggests that insiders delay their transactions to periods of time that are associated with
low reputational and litigation risks. The second empirical study is concerned with the slow adjustment
of stock prices and the excess returns that follow reported insider trades. The presented results show
that price e ciency is impeded by arbitrage risk and it is concluded that the market’s underreaction to
director’s dealings can mainly be explained by the cost of risky arbitrage. Furthermore, it shown that
outside investors can not easily earn abnormal returns by imitating directors’ dealings.Contents
Abstract 1
Table of Contents 1
List of Figures 7
List of Tables 8
List of Abbreviations 10
1 Introduction 13
1.1 Insider Trading and Directors’ Dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.2 Aims of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.3 Structure of Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2 Legislative Framework and Enforcement of Insider Trading Regulations 18
2.1 Insider Trading Regulations in the United States . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.1 Evolution of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.2 Denition of Illegal Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1.2.1 Core of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1.2.2 Insider De nition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.2.3 Inside Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1.3 Directors’ Dealings Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 22
2.1.3.1 Reporting Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1.3.2 Groups Required to Report . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.1.3.3 Publication of Directors’ Dealings . . . . . . . . . . . . . . . . . . . . . . 23
2.1.4 Enforcement of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.1.4.1 Enforcement Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.1.4.2 Penalties and Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.1.4.3 E ectiveness of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2 Insider Trading Regulations in the United Kingdom . . . . . . . . . . . . . . . . . . . . . 25
2.2.1 Evolution of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2.2 De nition of Illegal Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.2.2.1 Core of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.2.2.2 Insider De nition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.2.2.3 Inside Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.2.3 Directors’ Dealings Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 29
2.2.3.1 Reporting Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.2.3.2 Groups Required to Report . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.2.3.3 Publication of Directors’ Dealings . . . . . . . . . . . . . . . . . . . . . . 30
2.2.4 Enforcement of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2.4.1 Enforcement Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2.4.2 Penalties and Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2.4.3 E ectiveness of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.3 Insider Trading Regulations in Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.3.1 Evolution of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.3.2 De nition of Illegal Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.3.2.1 Core of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.3.2.2 Insider De nition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3.2.3 Inside Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3.3 Directors’ Dealings Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 36
2.3.3.1 Reporting Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.3.3.2 Groups Required to Report . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.3.3.3 Publication of Directors’ Dealings . . . . . . . . . . . . . . . . . . . . . . 37
2.3.4 Enforcement of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.3.4.1 Enforcement Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.3.4.2 Penalties and Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.3.4.3 E ectiveness of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.4 Comparative Analysis of U.S., U.K., and German Insider Trading Legislation . . . . . . . 40
2.4.1 De nition of Illegal Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.4.2 Directors’ Dealings Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 44
2.4.3 Enforcement of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.5 Ad-hoc Disclosure Requirements in the German Stock Market . . . . . . . . . . . . . . . . 50
2.5.1 Aims of Ad-hoc Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
2.5.2 Ad-hoc Disclosure Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
2.5.3 Publication of Ad-hoc Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3 Strategic Insider Trading 53
3.1 Insiders Trading Incentives and Trading Strategies . . . . . . . . . . . . . . . . . . . . . . 54
3.2 Trading around Di erent Types of News Announcements . . . . . . . . . . . . . . . . . . 55
3.3 Trading around Earnings-related Announcements . . . . . . . . . . . . . . . . . . . . . . . 59
3.4 Trading around Pro t Warnings and other Financial Distress Announcements . . . . . . . 71
3.5 Trading around New Security Issue Announcements . . . . . . . . . . . . . . . . . . . . . 72
3.6 Trading around M&A-Related Announcements . . . . . . . . . . . . . . . . . . . . . . . . 76
3.7 Trading around Other News Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . 81
3.8 Trading around News Announcements in the German Stock Market . . . . . . . . . . . . 81
4 Directors’ Dealings and Stock Market E ciency 83
4.1 The E cient Market Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.1.1 The Three Versions of the E cient Market Hypothesis . . . . . . . . . . . . . . . . 84
4.1.1.1 The Strong-Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
24.1.1.2 The Semistrong-Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.1.1.3 The Weak-Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
4.1.2 Theoretical Foundations of the E cient Market Hypothesis . . . . . . . . . . . . . 85
4.1.2.1 Investor Rationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
4.1.2.2 Randomness of Irrational Trades . . . . . . . . . . . . . . . . . . . . . . . 85
4.1.2.3 Arbitrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
4.1.3 Empirical Tests of the E cient Market Hypothesis . . . . . . . . . . . . . . . . . . 86
4.2 Challenges to the E cient Markets Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . 87
4.2.1 Theoretical Challenges to the E cient Markets Hypothesis . . . . . . . . . . . . . 88
4.2.1.1 Investor Rationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
4.2.1.2 Randomness of Irrational Trades . . . . . . . . . . . . . . . . . . . . . . . 88
4.2.1.3 Arbitrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
4.2.2 Empirical Challenges to the E cient Markets Hypothesis . . . . . . . . . . . . . . 89
4.2.2.1 Firm Size E ect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
4.2.2.2 Value E ect . . . . . . . . .