Insider trading and blackout periods: evidence from Italy

Abstract

Using a unique hand-collected data set, we investigate the effectiveness of internal dealing regulation and self-imposed blackout periods on companies in Italy. While insiders comply with the internal dealing regulation in reporting their transactions, managers are still able to realize abnormal returns from their trades. We find that company self-imposed blackout periods are often violated as insiders continue trading around corporate events, to the point that managers realize their most profitable trades specifically during these periods.

Keywords:

• insider trading
• internal dealing regulation
• blackout periods

JEL Classification:

• G14
• G38

Notes

¹ BPs are periods around corporate events (e.g. approval of financial statements) during which insiders cannot trade.

² As a robustness check, we reproduced our empirical analysis considering longer time periods (e.g. 20-day CAR) and obtained qualitatively similar results.

³ We calculated CARs cumulating abnormal returns estimated using the market adjusted model. Results are qualitatively unaffected if we use more sophisticated pricing models.

⁴ CARs associated with sales become larger (and significant) after 10 days (see Fig. 1), indicating that managers can realize abnormal returns after sales.

⁵ For example, if a company imposes a 15-day BP before quarterly earnings announcements and records 12 transactions corresponding to a total amount of €180 000 during these 15 × 4 = 60 days, its trading frequency per day and trading amount per day during BPs are 12/60 = 0.2 and 180 000/60 = 3000, respectively.

⁶ The CAR for large shareholder purchases outside BPs is even negative albeit only slightly significant.