Market reaction to insiders' trading : evidence from Singapore REITs

Abstract

The paper examines the presence of abnormal returns associated with 131 insider transactions and studies the market response to the announcement of the news in SREITs, the second largest REIT market in Asia. The results of the study provide evidence that S-REIT insiders are able to obtain abnormal returns when trading in the shares of their own companies. The market responds favourably upon release of news of insider trading. The transactions are further split into 'buy' and 'sell' events. The study concludes that insiders are able to obtain abnormal returns when buying their own company shares and the market responds positively to news of insiders' purchase. The outcome is similar for 'sell' events but the results are of low significance. Controlling for firm size, volatility, leverage, price to book ratio, purchase versus sales and the property sector, the cross-sectional regression results show that a key determinant of the abnormal returns is the type of ownership. Indirect owners, such as institutional shareholders, are able to obtain higher abnormal returns than direct owners, such as officers and managers.