Trading on inside information: Evidence from the share-structure reform in China

Hin Sang Tong, Shaojun Zhang, Yanjian Zhu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

26 Citations (Scopus)


We examine stock trading activities in days before Chinese listed firms made public announcement to start share-structure reform. There is significant evidence that, relative to a benchmark period, institutional investors bought more event firms' shares in the last two trading days prior to announcement. Randomization tests show significant differences in institutional trading activities between event firms and matched control firms, which suggests that some institutions had inside information. Moreover, large trades account for a significant proportion of daily stock price changes in the last 2. days. The evidence is consistent with the prediction by Holden and Subrahmanyam (1992) that, when multiple informed investors acquire the same piece of information, they will trade aggressively. We also find that over the reform period, the median share value change of event firms is 6% higher than that of control firms. Our findings have important implications for enforcement of insider trading regulations in China.
Original languageEnglish
Pages (from-to)1422-1436
Number of pages15
JournalJournal of Banking and Finance
Issue number5
Publication statusPublished - 1 May 2013


  • Regulation of insider trading in China
  • Share-structure reform
  • Stealth trading

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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