Abstract
This paper asks whether algorithm traders (AT) mitigate insider trading profits in the Thai stock market over the period of 2010–2016. We find that in general it does but not in the case of buy side, big trades nor the executive trades. Our findings suggest that, to some extent, AT can take important role to increase an efficiency in stock market by processing the public information and incorporating it into price at ultra-fast speed. Additional robustness checks based on the instrumental variable approach confirm our findings.
Highlights
Corporate insider trading performance has been studied extensively over the past 60 years
The control variables included in the regression are listed as follows: cumulated abnormal returns (CARs) (-250,1) is a monthly average cumulative abnormal return over the one year window prior trading day
The existence of insider trading profit deems to be inconsistent with the strong form of the efficient market model which states that all information, public and private, is fully reflected in stock prices
Summary
Corporate insider trading performance has been studied extensively over the past 60 years. Trading profits earned by corporate insiders are evidence against strong form market efficiency Several studies such as Hendershott et al [6], Brogaard et al [7], Martinez and Rosu [8], Foucault et al [9] and Boehmer et al [10] suggest algorithmic traders with their ability to process all publicly available information at ultra-high speed improve liquidity and information efficiency. Hendershott et al [6] suggest AT improves liquidity while Brogaard et al [7], Jovanovic and Menkveld [12], Martinez and Rosu [8], and Chakrabarty et al [13] provide evidence that AT enhances market efficiency We compliment these prior studies by presenting that in the presence of AT, the insider trading profits are lower for the insider sales with small to medium trade size.
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