Market reactions to legal insider trading on Oslo stock exchange marketplaces

Abstract

This paper investigates market reactions to legal insider trades on the Oslo Stock Exchange and analyses whether being listed on the sub-marketplace Merkur Market causes abnormal returns and turnover from insider transactions. Merkur Market is an alternative marketplace with more lax regulations, which we speculate causes a higher degree of information asymmetry between corporate insiders and outside investors. This could further yield excess market reactions. There are several major findings from our study. Firstly, insider purchases on the Oslo Stock Exchange cause both short-term abnormal return and turnover. Secondly, reactions from insider sales are weaker than from insider purchases. We argue that this may be due to insiders often selling for liquidation or diversification purposes. Thirdly, we find that both abnormal return and abnormal turnover from insider purchases are significantly higher for companies listed on Merkur Market than for those listed on the main exchange (XOSL). Finally, we compare market reactions from Merkur Market companies to a matched XOSL sample and find that being listed on Merkur Market cause abnormal returns of 5.60 per cent and an increase in turnover of 3.76 per cent for insider purchases. Keywords – Legal insider trading, information asymmetry, Oslo Stock Exchange