Abnormal volume traded as an indication of insider trading in JSE listed companies

Abstract

This research examines the volume traded in shares included in the JSE All Share Index for the period 1 January 2000 to 24 June 2009, to determine if this measure can be used as an indicator of potential insider trading, using event study methodology. 142 price-sensitive announcements qualified for analysis after controlling for confounding events. Of these, 34 announcements exhibited significant abnormal volume traded prior to the public announcement of the related event. The announcements were categorised into seven categories: Black Economic Empowerment (BEE) and governance; financial structure; investment / disinvestment; key personnel; mergers and acquisitions; trading updates; and 'other'. Two categories exhibited significant cumulative abnormal returns - BEE and governance, and key personnel. We find that volume traded is a useful indicator of potential insider trading, and should be used in conjunction with other methods.