, Volume 158, Issue 3, pp 237-293,
Open Access This content is freely available online to anyone, anywhere at any time.

The Effects of a Change in Market Abuse Regulation on Abnormal Returns and Volumes: Evidence from the Amsterdam Stock Market

Summary

The Market Abuse Directive came into effect on 1 October 2005. One of its purposes is to reduce illegal insider trading and leakage of information prior to official releases by increasing penalties. Applying an event study approach to a dataset of almost 5,000 corporate news announcements, the analysis reveals that the information value of announcements, measured by the announcement day abnormal return and abnormal volume, is not significantly different after the new regulation than it was before although the number of releases has increased significantly. Trading suspicious of illegal insider trading and leakage of information, measured in terms of cumulative average abnormal returns and volumes for the 30 days prior to the news announcement, has significantly declined for small capitalization firms, for announcements containing information about alliances and mergers and acquisitions and for firms in the technology sector.

We benefited from the comments made by seminar audiences at the Netherlands Authority for the Financial Markets (AFM) and the Financial Services Authority (FSA) in Britain; and from very useful suggestions by two referees, Arnoud Boot and Hans Degryse to improve the paper.