Professor Chu Zhang from Hong Kong University of Science & Technology was invited by the Chinese Commerce Research Centre (CCRC) and the School of Accounting and Finance in the Faculty of Commerce to present his paper, ‘China’s Regulations on Insider Trading of Unlocked Restricted Stocks’, at a recent seminar on 22nd August 2012.
In this joint paper Professor Zhang examines the effectiveness of the insider trading regulations in China. “Insider trading regulations in China are special in many aspects and the research on the effectiveness of these regulations can provide insights for other markets in understanding why certain regulations do not achieve their intended goals and how regulations can be made better to strike a balance between market efficiency and fairness,” argued Professor Zhang.
“Most countries around world have regulations on insider trading,” said Professor Zhang. “The joint paper seeks to answer, how effective are these regulations? How do insiders actually trade legally under the regulations, and what are the implications for the outside investors in their trading?” added Professor Zhang.
Professor Zhang provided evidence that the Chinese new regulations failed to prevent the stock prices from declining following insiders' sales of unlocked restricted stocks. He also provided evidence that the main culprit is actually the affiliated company shareholders who possess insider information about future earnings of their firms. The results point out the weaknesses of the general regulations, which mainly target individual insiders and of the specific rule, which merely alters the profit distributions between insiders and the institutions/wealthy individuals who buy discounted stocks from the insiders in block trades.
Professor Zhang has published in various top finance journals such as Journal of Finance, Journal of Financial Economics, Journal of Business, Journal of Financial and Quantitative Analysis and Management Science.
Professor Gary Tian, from the School of Accounting and Finance in the Faculty of Commerce said the visit was very successful. “The intention, which was accomplished, was to have a collaboration of research between the CCRC and Professor Zhang in the research area of Chinese capital market in a near future” said Professor Tian.