Final Assignment

Financial Market and Istitution

Prof. Kuo, She hwei

Attentive insider trading

Dallin M.Alldredge, DavidC.Cicero
UniversityofTennessee,USA
UniversityofAlabama,USA
 Group 3

Afriyanti H/ M10324057 Randy Heriyanto /M10324

Aulia Annisa I/ M10324055 Sugih Sutrisno P / M10324
Dina Yeni M/ M10324060 / M10324
Dimas Sumitra D/M10324 / M10324
Endah Dwi K /M10324 /M10324
Fiesty Utami / M10324061 /M10324
Leni Nurpratiwi /M10324
Introduction
Data and Methodology
Empirical Result
 Table 2. Industry classifications of suppliers
and principal customer

In asset pricing and portfolio

management the Fama
French three-factor model is
a model Kenneth French to
describe stock returns

Firm that have strong

relationship give higher
return than Non-linked
firms
Table 3. Market-adjusted abnormal returns following supplier insider trader

The contrast in returns is starkest with top-level officers (chief executive officers, chief financial
officers, and chief operating officers), who are most likely to be focused on information affecting
their firms' future pro- specs. Top-level officers are also under the spotlight of regulators and the
press, which could motivate them to avoid trading on private information
 Table 4. An analysis of supplier insider trading returns compared with insider
trading at other firm

dummy
Variable

In Panel A, we do not find evidence of abnormal returns following

supplier insiders' sales during this year (insignificant coefficient of
0.0014 on the intercept). This could indicate insiders' reluctance to
sell stock on information before the public could be expected to know
the importance of the economic link.
Table 4 (Cont.)
Table 5
The frequency of insidertrading
at economically linked suppliers.
We analyze insider sale
months and insider purchase
months separately. The table
also includes a comparison of
routine and non routine
trades.
Standard errors are in
parentheses, and
significance at the 1%, 5%,
and 10% level
3.2. What causes insiders at economically linked suppliers to trade?
PANEL A
We find significantly higher levels of both routine and
non routine stock sales at economically linked firms

This leads to a significantly higher difference-in-

differences of 0.127 trade months per year for the
economically linked suppliers versus other firms.

PANEL B
For both sales and purchases, there is a lower level of routine
trading and a higher level of nonroutine trading in years when
the economic links are reported

The results in this panel suggest that for these firms, in

aggregate, more profitable trading opportunities arise when
these links exist

Among the possibilities, it could be that supplier insiders have both

more public and private information predicting returns when these links
exist.
The increased selling could reflect trading on public information, but
the increased purchasing could reflect additional trading on private
information, too.