Informed trading and stock returns in the BM&FBOVESPA

Abstract

In Brazil, according to Law No. 10.303/2001, the improper use of inside information in the stock market is crime. However, in literature there are studies to indicate the existence of insider trading in this market (BOPP, 2003; BARBEDO; SILVA; LEAL, 2009). Therefore, this study aims to investigate the Probability of Informed Trading (PIN) in stock trading on the BM&FBOVESPA, trying to identify its relationship with stock returns. Based on Efficient Markets Theory and Agency Theory, we analyzed 198 stocks during the year 2011. The information asymmetry was measured (PIN) using the model of Easley, Hvidkjaer and O’Hara (2002) and related to stock returns through the model of Fama and MacBeth (1973) set. The results indicate that there is 22.9% probability of insider trading has occurred, that the segments with higher governance requirements together with the stocks that lower information asymmetry and an increase of 10.0% in PIN leads to an increase of 8.0 % in stock returns.