News study by Financial Services Research Centre members published in Management Science

A new study “Do Brokers of Insiders Tip Other Clients?” by Financial Services Research Centre members William McNally, Andriy Shkilko and Brian Smith was published in Management Science.

William J. McNally is a professor at Wilfrid Laurier University. He received his PhD in Finance from the University of Toronto and joined Laurier in 1999 after seven years at the University of Victoria. He has published in journals such as Financial Management and the Journal of Banking and Finance. He is a co-author (with Stanley Eakins) of Corporate Finance Online, an online introductory finance textbook which is published by Pearson in both the U.S. and Canada. 

Andriy Shkilko is a Canada Research Chair in Financial Markets. He has received awards from the Ontario Ministry of Research and Innovation, the American Association of Individual Investors, Toronto CFA Society and Hillsdale Investment Management, Northern Finance Association, Auckland Centre for Financial Research, the RS-DeGroote Conference on Market Structure and Market Integrity, the Mid-Atlantic Research Conference in Finance, and twice from the Eastern Finance Association. He currently holds research grants from the Canada Foundation for Innovation and the Social Sciences and Humanities Research Council (SSHRC).

Brian Smith has been a faculty member at Laurier since 1987 after receiving his PhD in Finance from the University of Western, Ontario. In 2012 and 2013, he served as the president of the Northern Finance Association. He has over 40 refereed publications and over 1800 citations in the field of finance with a particular focus on Canadian capital markets.

In the paper, McNally, Shkilko, and Smith, all faculty in the Lazaridis School of Business and Economics, examine trading activity around insider transactions on the Toronto Stock Exchange. The authors find that insiders in their sample have good timing; returns are usually positive (negative) after insider purchases (sales). They also find evidence that some traders mimic insider positions. The authors’ unique data set shows that the traders who mimic the insiders share the same stock broker as the insiders. Their findings are consistent with the possibility that some brokers tip their clients about insider trades. Insiders’ good timing translates to the mimicking transactions, which appear to be profitable beyond covering trading costs. Evidence consistent with tipping is observed mainly for smaller independent brokerages.