Profitability of insider trading in Turkey

Abstract

This study presents the first comprehensive evidence of insider trading patterns and abnormal profits in the Turkish stock market using almost 65,000 insider transactions for the period of 2008–2019. Our findings show that insiders earn a significant 6.58% abnormal profit during the one year following insider trading. Officers, directors, and institutional investors earn even more. Both purchases and sales are profitable. Top executives, major shareholders, and institutional investors earn significant dollar profits. Additionally, uninformed investors can beat the market by mimicking the portfolios of insiders, while evidence shows that regulatory changes do not reduce insiders’ profits. Finally, this study provides important trading implications for investors and regulatory implications for policymakers everywhere.

KEYWORDS:

• Insider trading
• market mispricing
• event study
• dollar profits
• short-swing profits rule
• Fama-French factors for emerging markets

JEL Codes:

• G10
• G11
• G14
• G18

Acknowledgments

I thank Patrick Hable for providing me with the data used in the analyses and Nikolay Vasilev for his assistance with the data. I am grateful to Nejat Seyhun, two anonymous referees, the associate editor, and the editor for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

While data are available for purchase directly from 2IQ for anyone, the author is contractually prohibited from sharing her data with others. All interested parties should contact 2IQ directly for data purchases.

Notes

1 Capital Market Law No: 3794

2 Capital Market Law No:6362

3 (15 U.S.C. SS78p(b)(2012)).

4 Communiqué on Payment of Net Trading Profits by Executives of Issuers to Issuers, 2013.

5 Communiqué on Measures to Take for Insider Trading and Manipulation Investigations, 2014.

6 Communiqué on Material Events Disclosure Regarding Non-Publicly Traded Corporations, 2014.

7 Communiqué on Obligation of Notification Regarding Insider Trading or Manipulation Crimes, 2014.

8 Market Abuse Communiqué, 2014.

9 Communiqué on Material Events Disclosure, 2014.

10 Id.

11 Id.

12 The average effective exchange rate for the entire sample period is 1$  = 2,68TL (Turkish Republic Central Bank daily values are averaged).

Additional information

Notes on contributors

S. Burcu Avci

S. Burcu Avci is a lecturer in Finance at Sabanci Business School. She holds a Ph.D. in Business from Ozyegin University (2016). Dr. Avci’s research focuses on corporate finance, corporate ethics, insider trading, and sustainability. Her research agenda includes current topics such as IPO processes, capital structure, executive compensation, and sustainability.