New Economics Papers
on Market Microstructure
Issue of 2010‒04‒24
two papers chosen by
Thanos Verousis

  1. Trading strategies and trading profits in experimental asset markets with cumulative information By Thomas Stöckl; Michael Kirchler
  2. Insider Trading, Option Exercises and Private Benefits of Control By Peter Cziraki; Prof. Dr. Luc Renneboog; Peter de Goeij

  1. By: Thomas Stöckl; Michael Kirchler
    Abstract: We study the use of trading strategies and their profitability in experimental asset markets with asymmetrically informed traders. We find that insiders make most of their profits from trades which are initiated by their limit orders -- especially at the beginning of a period and when the change in their fundamental information is large. The average informed lose most with market orders and their losses are highest at the beginning of a period when they can be exploited by insiders. Uninformed traders act as liquidity providers. They place the highest number of limit orders and end up with the market return.
    Keywords: Asymmetric information; liquidity; trading strategies; limit order markets; experiment
    JEL: G12 G14
    Date: 2010–04
  2. By: Peter Cziraki (PhD candidate, Department of Finance, Tilburg University); Prof. Dr. Luc Renneboog (Department of Finance, Tilburg University); Peter de Goeij (Department of Finance, Tilburg University)
    Abstract: We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by antishareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position.
    Keywords: insider trading, management stock options, timing by insiders, corporate governance, antishareholder mechanisms, anti-takeover mechanisms
    JEL: G14 G34 M52
    Date: 2010–03

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