Disclosure regulation and the profitability of insider trading: Evidence from New Zealand

Abstract

This paper provides evidence on insider trading in New Zealand by examining transactions disclosed by corporate insiders for a sample of 93 listed companies over the 1995–2001 period. These transactions include two types of disclosures: immediate disclosures, as represented by substantial shareholder (SSH) notices, and delayed disclosures, as reported in annual reports. The results (2453 transactions) show that insiders earn significantly large abnormal returns on their transactions, with the gains coming largely from transactions involving delayed disclosure. In contrast, transactions involving immediate disclosure earn insignificant returns. The results also show that the size of the company, membership in a major stock index, the position of the insider and the percentage of the insider's holdings being traded all affect the size of the abnormal returns. These findings lend strong support to amendments to securities laws that require continuous disclosure for all transactions.