The Privilege of Possessing Inside Information: A study of insider trading in Denmark

Abstrakt

We construct and use a unique dataset consisting of high quality Danish register data to study insider trading prior to the release of corporate announcements in Denmark. The insider trading behavior is studied by conducting an event study and a pooled cross-sectional regression study. We find that the trading activity of corporate insiders rises significantly shortly before the release of a company specific announcement and that this trading activity predicts the pricing impact of the announcement. This pre-announcement pattern persists when controlling for socioeconomic factors. Furthermore, we document that corporate insiders and their families obtain substantial abnormal returns when trading before announcements. No such returns are obtained by the outside population, which indicates that a subset of corporate insiders and their families possesses and exploits nonpublic information.