This thesis addresses two important issues necessary to understand whether insider trading
should be prohibited: the effects of insider trading on stock prices and the compensation to insiders
for providing information and other related services. This task is accomplished by analyzing stock
price changes during corporate takeovers, before and after the regulatory changes in the 1980's that
were designed to reduce the level of insider trading.
In this thesis, we develop an indirect measure of insider trading that shows how observable
stock price movements during takeovers allow one to make inferences about changes in insider
trading after regulatory changes. Specifically, we show that when inside information is partially
revealed to the market, the effects of regulatory changes on insider trading can be identified by
examining the price movements of stocks around takeover announcements. If, however, information
is not revealed at all or is fully revealed, it is impossible to identify the effects of regulatory changes
on insider trading.
We also develop a segmented diffusion model to analyze price movements characterized by
cumulative abnormal returns during the period surrounding a takeover announcement. An
econometric model is developed to estimate the segmented diffusion model. Naturally, this
methodology applies to the study of various events in addition to corporate takeovers and regulatory
changes.
We conduct empirical analysis to test three hypotheses. With regard to Hypothesis I, we find
strong evidence that the tightening of insider trading regulations in the 1980's was effective and that
inside information was partially revealed to the market. With regard to Hypothesis II, we find
evidence that insider trading regulations have more effect on negotiated takeovers than on takeovers
initiated by bidding. With regard to Hypothesis III, we find weak evidence that insiders associated
with acquiring firms seek fewer but more profitable takeovers after the introduction of tighter
regulations.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:BVAU.2429/8769 |
| Date | 05 1900 |
| Creators | Liu, Zhu Stuart |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Relation | UBC Retrospective Theses Digitization Project [http://www.library.ubc.ca/archives/retro_theses/] |
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