Alqu ayn, Abdul hman; Kulend an, Nada; Ihalanayake, Ranji h
A icle
An e en s udy o po en ial inside ading in he Saudi
s ock ma ke
Cogen Economics & Finance
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Alqu ayn, Abdul hman; Kulend an, Nada; Ihalanayake, Ranji h (2024) : An e en
s udy o po en ial inside ading in he Saudi s ock ma ke , Cogen Economics & Finance, ISSN
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An e en s udy o po en ial inside ading in he
Saudi s ock ma ke
Abdul hman Alqu ayn, Nada Kulend an & Ranji h Ihalanayake
To ci e his a icle: Abdul hman Alqu ayn, Nada Kulend an & Ranji h Ihalanayake (2024)
An e en s udy o po en ial inside ading in he Saudi s ock ma ke , Cogen Economics &
Finance, 12:1, 2367368, DOI: 10.1080/23322039.2024.2367368
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FINANCIAL ECONOMICS | RESEARCH ARTICLE
An e en s udy o po en ial inside ading in he Saudi s ock ma ke
Abdul hman Alqu ayn
#
, Nada Kulend an and Ranji h Ihalanayake
Vic o ia Uni e si y, Melbou ne, Aus alia
ABSTRACT
This s udy assesses he le el o po en ial inside ading on he Saudi s ock ma ke
(Tadawul) be o e and a e he in oduc ion o inancial e o ms. The le el o po en ial
inside ading is es ima ed by employing he ma ke cleanliness measu e (MCM)
which de e mines he p opo ion o signi ican announcemen s (SAs) ha we e p e-
ceded by abno mal p e-announcemen p ice mo emen s (APPMs). The analysis was
ca ied ou using an e en s udy app oach o gauge he impac o an e en on a
secu i y e u n. The ma ke model is used o es ima e he expec ed e u n which is
subsequen ly compa ed wi h he ac ual e u n. The indings sugges he exis ence o
signi ican abno mal e u ns su ounding 128 ou o 1,958 unscheduled announce-
men s made by i ms lis ed on Tadawul om 2011 o 2020. The MCM shows ha
56.36% o SAs we e p eceded by APPMs du ing he p e- inancial e o ms pe iod
whe eas he a io d opped o 45.2% o e he pos - inancial e o ms pe iod. Al hough
he indings sugges a educ ion in he MCM by 11.16%, he s a is ics o he subse-
quen pe iod was no s a is ically lowe han he p eceding pe iod. The p esen s udy
es ablishes a undamen al basis o acking he e icacy o new egula ions in de e -
ing inside ading ac i i ies. This s udy p o ides empi ical e idence and implica ions
ha can be aken in o conside a ion by all pa ies conce ned wi h illegal inside ad-
ing and ma ke in eg i y.
IMPACT STATEMENT
In iew o he signi icance o ma ke in eg i y and ai ness, i is impo an o iden i y
he consequences o impai men s o ma ke in eg i y and insu icien de e ence o
inside ading. The indings o he s udy may be bene icial in d i ing egula o s’
en o cemen mechanisms o s eng hening ma ke su eillance and comba ing ma -
ke misconduc by mo e ac i ely implemen ing disciplina y ac ions. In addi ion,
sequen ial e iews and assessmen s ha e been called o since he launch o Saudi
Vision 2030 o ensu e he deli e y o i s inancial e o m plans. Apa om i s policy
implica ions, he s udy is o in e es o policymake s as i o e s a ounda ion o egu-
la o y bodies o de e mine whe he u he egula ions a e needed o s eng hen
egula o y pe o mance and p omo e ma ke discipline. Second, he esul s may be o
in e es o i ms seeking o ensu e p ope unc ioning o accu a ely main ain ma e ial-
sensi i e in o ma ion and egula e i s elease h ough app op ia e channels.
ARTICLE HISTORY
Recei ed 31 Janua y 2023
Re ised 20 May 2024
Accep ed 9 June 2024
KEYWORDS
Inside ading; in o med
ading; e en s udy
me hodology; ma ke
cleanliness measu e;
abno mal e u ns; Inside
ading; e en s udy
me hodology; abno mal
e u ns
REVIEWING EDITOR
Xibin Zhang, Econome ics
and Business S a is ics,
Monash Uni e si y, Caul ield
Eas , Aus alia
SUBJECTS
Economics; Finance;
Business, Managemen and
Accoun ing; Financial
Ma ke s; Co po a e Finance;
Go e nance
1. In oduc ion
In o ma ion on secu i ies ma ke s is a mo i a ing o ce o he ading ope a ions o ma ke pa icipan s.
Unlike public in o ma ion, p i a e in o ma ion p o ides a unique ad an age o ce ain ma ke pa ici-
pan s, usually co po a e inside s, who possess supe io access o such in o ma ion compa ed o o he
ma ke pa icipan s (John & Lang, 1991; Yin & Zhao, 2015). The impac o p i a e in o ma ion in ol es
being composed o ma e ial p ice-sensi i e in o ma ion. This in u n can incen i ize inside s o exploi
he o eknowledge o hei i ms’pe o mance and enable hem o ea n excess e u ns (Keown &
Pinke on, 1981; Lee, 2021). An ex ensi e body o li e a u e on illegal inside ading has documen ed
CONTACT Abdul hman Alqu ayn [email p o ec ed] Vic o ia Uni e si y, Melbou ne, Aus alia
#
P esen add ess: King Khalid Uni e si y, Al Fa a, Abha, 62223, Kingdom o Saudi A abia.
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2367368
h ps://doi.o g/10.1080/23322039.2024.2367368
ha he inancial ma ke s a e s uc u ed on us and ha he abuse o he possession o p i a e in o -
ma ion impai s ha us and hus aises conce ns abou ma ke in eg i y and e iciency (Mon ei o e al.,
2007; Ca ajal & Ellio , 2009; Dalko & Wang, 2016).
The p e alence o inside ading in Tadawul has aised ques ions abou he in eg i y o he ma ke
and he po en ial e ec o such p ac ice on unde mining in es o s’con idence. In 2018, he Saudi
Capi al Ma ke Au ho i y (CMA) imposed 129 penal ies on 249 iola o s o ules and egula ions.
Penal ies o inside ading we e he highes , o alling mo e han 86 million USD.
1
In Augus 2021, he
CMA e e ed a g oup o mo e han 250 indi iduals o he Public P osecu ion cha ged wi h disclosing
inside in o ma ion o lis ed i ms on social media.
2
The media, howe e , ha e exp essed conce n o e
he pe asi eness o inside ading due o he abundan umou s ci cula ing wi hin Tadawul. These a e
c i ical issues ha could discou age in es o s’pa icipa ions, in luence he ma ke liquidi y and wo sen
s ock p ice in o ma i eness (Bha acha ya & Daouk, 2009; Collin-Du esne & Fos, 2015; Kim e al., 2019;
Ahe n, 2020).
The CMA hough a i ms ha he Capi al Ma ke Law (CML) and i s implemen ing egula ions p ohib-
i s inside ading and conside s i as a c iminal o ense in Saudi A abia. The Saudi go e nmen has aken
emendous s eps o de elop i s economy h ough inancial e o ms, b oadly e e ed o as Saudi Vision
2030, which was adop ed in 2016. The e o ms plans we e accompanied by a mo e elabo a e p og am
called he Financial Sec o De elopmen P og am (FSDP). One pu pose o he FSDP is o de elop e ec -
i e inancial ins i u ions o suppo he g ow h o he capi al ma ke and quali y Tadawul o become an
ad anced capi al ma ke . The e o e, he CMA has unde aken c ucial ini ia i es ha include loosening
owne ship limi s o o eign in es o s o a ac mo e in es o s and amending he Ma ke Conduc
Regula ions (MCR) which in ol ed ex ending he scope o inside ading p ohibi ion.
Despi e millions o dolla s in ines imposed on inside ade s along wi h c iminal cha ges b ough
agains hund eds o indi iduals who implica ed in illegal inside ading, such ami ica ions ha e heigh -
ened conce ns abou in eg i y in Tadawul and may h ea en he aim o a ac ing mo e in es o s.
Mo i a ed by hese obse a ions, we a emp o empi ically es ima e he le el o po en ial inside ad-
ing. I may be conjec u ed ha inside ading legisla ion in Tadawul lacks a su icien mechanism o
de e such misbeha iou . In o he wo ds, he low quali y o ins i u ions, weak en o cemen o inside
ading laws, o minimal penal ies and sanc ions could c ea e space o inside s o engage in ma ke
misconduc . These a e c i ical challenges ha con on secu i ies egula o s o main ain he ma ke dis-
cipline and p omo e he in es o s’pa icipa ions. The amoun o con idence in he ma ke can a ec he
amoun o inancing ha can be aised h ough he s ock ma ke (Bha acha ya & Daouk, 2002).
The amended egula ions o MCR a e in ended o enhance he con idence o in es o s and ackle
ma ke misconduc . Howe e , he e is an impe a i e need o unde s and mo e abou ma ke abuse in
Tadawul, especially illegal inside ading, which has hi he o ecei ed li le a en ion o empi ical back-
g ound esea ch. I is, hus, he p ima y aim o his s udy o ill his gap by in es iga ing he impac o
he new egula o y amendmen s in oduced wi h he inancial e o ms on he in eg i y o Tadawul wi h
a pa icula ocus on po en ial inside ading. The p esen s udy seeks o es ima e and compa e he
ma ke cleanliness measu e (MCM) o Tadawul in he pe iods bo h be o e and a e he in oduc ion o
he inancial e o ms. The e is a lack o s udies wi h espec o he es ima ion o possible inside ading
p ac ice in Tadawul whe e he mos p e ious empi ical s udies on Tadawul ha e ocused on he s ock
p ice eac ion and he ma ke e iciency. Fo examples, Syed and Bajwa (2018) measu ed he impac o
qua e ly ea nings announcemen s on s ock p ices eac ion in Tadawul wi h he aim o es ing he
E icien Ma ke Hypo hesis (EMH) and ound signi ican abno mal e u ns (ARs) se e al days p io o he
ea nings announcemen s. Felimban e al. (2018) examined he s ock ma ke esponse o di idend
announcemen s in Gul Coope a ion Council (GCC) coun ies, including Tadawul, and sugges ed he
in o ma ion leakage be o e he announcemen s da es. Howe e , hese ypes o di idends and ea nings
announcemen s a e o en p escheduled ea lie . The e o e, one may a gue ha he p esence o ARs o
in o ma ion leakage be o e such e en s a e mo i a ed by in o med ading o sophis ica ed in es o s
ha is d i en by hei in o ma ion acquisi ion and/o he in o ma ion p o isions o sell-side analys s
(Welle , 2018; Chen e al., 2020). Mo eo e , he ARs be o e he a o emen ioned announcemen s could be
a ibu able o a en i e ading on public in o ma ion as shown by Alld edge and Cice o (2015)o
a he by he ac ha he ma ke is mos ly being awa e o hei imminen elease.
2 A. ALQURAYN ET AL.
Unlike p e ious s udies, we exclude such i ms announcemen s and es ic ou sample o unsched-
uled announcemen s. These announcemen s a e likely o be a su p ise e en s o he ma ke assuming
ha hey pa icula ly in ol e a elease o in o ma ion in which he iming is no publicly known, and
hey a e no easily p edic able by he ma ke pa icipan s. On he o he hand, he exis ence o signi i-
can ARs ahead o unscheduled announcemen s is mo e likely o be d i en by co po a e inside s o
o he o ms o suspicious ading ac i i ies ha ely on ma e ial non-public in o ma ion. This s udy may
be he i s ha empi ically measu es he le el o po en ial inside ading ac i i ies in Tadawul using a
dis inc ype o majo e en s and mo e ecen da a se du ing a pe iod ma ked by subs an ial ans o -
ma ions in he his o y o Tadawul.
This pape ex ends he p io wo k o he ma ke cleanliness me hodology o answe he esea ch
ques ion o whe he he new egula o y changes we e success ul in educing he occu ence o possible
inside ading ac i i ies p io o i ms announcemen s on Tadawul. We examined he esea ch ques ion
using a sample o 1,958 unscheduled announcemen s eleased by he companies lis ed on Tadawul
om 2011 o 2020 ( he ele an pe iod). The esea ch hypo heses we e es ed by pe o ming an e en
s udy app oach o daily s ock e u ns o examine he ex en o which abno mal p e-announcemen p ice
mo emen s (APPMs) ha e aken place be o e signi ican announcemen s (SAs). The analysis is ca ied
ou using a s a is ical model i ed o he ime se ies da a. The s udy will e eal he p opo ion o
APPMs obse ed p io o SAs o e he ele an pe iod.
Ou pape makes se e al con ibu ions o he li e a u e and he body o knowledge. The empi ical
indings o he s udy a e impo an o policymake s, i ms and in es o s. Fi s , ou pape p o ides a alu-
able con ibu ion o he unde s anding o he e ec i eness o inside ading laws and hei en o ce-
men in Tadawul. The s udy o e s a ounda ion o egula o y bodies o de e mine whe he addi ional
egula ions a e needed o s eng hen egula o y pe o mance and p omo e he ma ke discipline.
Second, he esul s can be o in e es o i ms in ensu ing p ope unc ion o accu a ely main ain ma e -
ial-sensi i e in o ma ion and egula e i s elease h ough an app op ia e channel. Thi d, he s udy p o-
ides aluable insigh s o in es o s abou ma ke condi ions pe aining o inside ading p ac ises and
holds alue-adding in he eme ging ma ke con ex as well. The scope o he s udy is limi ed o examine
abno mal s ocks e u ns; howe e , an iden i ied limi a ion in ol es o no examine abno mal ading
olumes.
The emainde o his a icle is s uc u ed as ollows. Sec ion 2 p oceeds wi h he li e a u e e iew
and hypo hesis de elopmen . Sec ion 3 p esen s he da a and sample desc ip ion, while Sec ion 4
desc ibes me hodology. Sec ion 5 p esen s analysis and esul s, and Sec ion 6 concludes his a icle.
2. Li e a u e e iew and hypo hesis de elopmen
A numbe o p ominen schola s in secu i ies law and inancial ma ke s ha e ex ensi ely deba ed o
whe he he po en ial bene i s o inside ading p ac ice ou weigh i s d awbacks. In one hand, a as li -
e a u e has been de o ed on he se ious ha m ha inside ading does o he capi al ma ke s ai ness,
liquidi y and s ock p ice in o ma i eness, hus i equi es s ic egula ions (Bha acha ya & Daouk, 2002;
Kwabi e al., 2018; Ojah e al., 2020). Ano he school o hough has a gued in a ou o inside ading
s a ing ha i os e s ma ke e iciency, and i is an e icien me hod o compensa e co po a e manage s
o hei en ep eneu ial e o s (Manne, 1966; Ca l on & Fischel, 1983). I is impo an o no e ha no
all o ms o inside ading a e illegal; ye some a e en i ely legi ima e (Shell, 2001; McGee, 2010).
Al hough a longs anding li e a u e deba e be ween he opponen s and p oponen s o inside ading
p ohibi ion, illegal inside ading is conside ed as a c iminal conduc in many coun ies. As a esul ,
mos coun ies ha e es ablished laws and legisla ion o p e en ma ke misbeha iou s such as inside s
abusing hei supe io knowledge o p i a e in o ma ion (Bha acha ya & Daouk, 2002; La Po a e al.,
2002,2006).
2.1. Inside ading and s ock e u n anomalies
E idence om o e h ee decades o inside ading in es iga ions b oadly unde pins he assump ion
ha illegal inside ading enables inside s o ei he gain abno mal p o i s o a oid po en ial loss by
COGENT ECONOMICS & FINANCE 3
exploi ing hei p i ileged in o ma ion a he expense o o he in es o s (Kyle, 1985; Seyhun, 1986;
Ba clay & Wa ne , 1993; Jain e al., 2018; Suk & Wang, 2021). I has been empi ically documen ed ha
he ma ke can de ec inside ading ac i i y as such p ac ice impounds he in o ma ion in o he s ock
p ice (Meulb oek, 1992; Bha acha ya e al., 2000). D awing on i s hand obse a ions o inside ading
inciden s, Meulb oek (1992) e ealed in e es ing esul s pe aining o 183 illegal inside ading cases
cha ged by he U.S. Secu i ies and Exchange Commission (SEC) om 1980 o 1989. The au ho disco -
e ed ha 43% o p ice un-ups obse ed o e he 20 days be o e akeo e announcemen s. In a simila
ein, Ahe n (2017) examined inside ading p osecu ions iled by he SEC and he Depa men o Jus ice
(DOJ) o he U.S. be ween 2009 and 2013. The au ho epo ed ha he s ock e u n a e age o ading
on inside in o ma ion gains 34.9% o e 21 ading days om he o iginal leakage da e un il he o icial
public announcemen o egula o y announcemen s whe eas me ge and acquisi ion (M&A) e en s yield
a e age e u ns o 43% o e 31 ading days leading up o he e en da e. These indings p o ide
empi ical e idence o he impac o inside ading on he p ocess o secu i y p ice o ma ion.
Con a y o he massi e amoun o li e a u e in es iga ing inside ading in he U.S. and o he de el-
oped capi al ma ke s, Tadawul has ecei ed e y li le schola ly a en ion. Nume ous s udies on Tadawul
ocus on he heo e ical aspec s o inside ading egula ion, bu he e is li le o empi ical esea ch. Fo
ins ance, Syed and Bajwa (2018) conduc ed an e en s udy app oach o es he EMH in he Tadawul by
examining he s ock p ices eac ions o 1,601 qua e ly ea nings announcemen s om 2009 o 2014. The
au ho s designa ed e en window comp ising 21 ading day and obse ed signi ican and posi i e ARs
in a ou able o good news end du ing he days leading up o he e en day, pa icula ly om day 9
o day 4 wi hin he e en window. Same e en window leng h o 21 ading days was used by Al
Qudah and Badawi (2015) who es ed he signaling heo y o di idend announcemen s in Tadawul.
Thei indings sugges ha he p ices eac ions o di idend announcemen s we e no signi ican due o
many es ic ions on di idend policy in Tadawul. Howe e , hese indings a e incons an wi h hose o
Felimban e al. (2018) who in es iga ed he esponse o he s ock ma ke o 1,092 di idend announce-
men s made by 299 lis ed i ms in he GCC egion om 2010 o 2015 and p o ided e idence indica ing
ha he esponse o s ock p ices lends pa ial co obo a ion o he signaling hypo hesis. The p esen
s udy is ca ied ou in a ious ways going beyond he scope o hose s udies. I p o ides mo e p ecise
p edic ions abou inside ading ac i i ies and hei implica ions o s ock p ice mo emen s. This pape
employs di e en s a is ical analyses and uses la ge and dis inguished sample o unscheduled i ms
announcemen s o e a longe pe iod which wi nessed adical ans o ma ions in Tadawul.
Schola s and secu i ies egula o y au ho i ies a ibu e ha he exis ence o signi ican ARs be o e he
majo i ms e en s da es as an indica o ha he e en s include impo an news abou sha es alue and
can be a signal o inside ading p ac ices and in o ma ion leakage (Ja e, 1974; Olmo e al., 2011;
Goldman e al., 2014; Collin-Du esne & Fos, 2015). The ARs can be es ima ed by conduc ing he e en
s udy me hod which p obe he exis ence o ARs in he s ock p ices p io o he i ms e en da e. The
le el o po en ial inside ading can be es ima ed by using he MCM which iden i ies he a io o
APPMs ha ha e aken place ahead o SAs. Concep ually, he idea o he MCM is unde pinned by he
EMH which assumes ha new in o ma ion should be apidly e lec ed in o p ice changes. In e p e ing
he occu ence o APPMs wi hin he con ex o he EMH, he implici in e ence is ha i iola es he
s ong o m o he EMH which supposes ha asse p ices e lec all public and p i a e in o ma ion. Fama
(1970) said, ‘s ong o m es s conce ned wi h whe he gi en in es o s o g oups ha e monopolis ic
access o any in o ma ion ele an o p ice o ma ion’(p. 383).
Figu e 1 illus a es how inside ading ac i i ies in luence he p ice mo emen s. In a clean ma ke , as
shown by he g een line, he asse p ice mo emen ollows no mal beha iou in he absence o new
in o ma ion o e he es ima ion window leading up o he o icial announcemen da e. Once he
announcemen is made publicly, as indica ed by he e ical line labelled as he e en day, he s ock
p ice eac s ins an ly showing a clea spike on he e en day as a esul o he a i al o good news. By
con as , in an unclean ma ke , he g aph depic s ha he s ock p ice begins an upwa d d i , as shown
by he ising ed line, se e al days ahead o he e en day du ing he p e-e en window. In such case
whe e he asse p ices enjoyed a signi ican inc ease be o e he e en day (i.e. APPMs), his beha iou
may signal in o ma ion leakage and could be a sign o inside ading ac i i ies be o e SAs.
4 A. ALQURAYN ET AL.
The indica ion o he MCM can be es ima ed om he a io o APPMs ha we e obse ed be o e he
SAs. Subsec ion 4.2 desc ibes he echniques o de e mining i an e en is SA and p eceded by APPMs.
B ie ly, he signi ican CARs o e he pos -e en window imply ha he announcemen con ains impo -
an news and should be conside ed as SA while he signi ican CARs ac oss he p e-e en window a e
indica o o he occu ence o APPMs. By con as , he e en is no conside ed as a SA o p eceded by
an APPM i no s a is ically signi ican CARs we e de ec ed o e he e en window being examined. The
li e a u e e iew es ablishes ou esea ch hypo heses which a e o mula ed in a null o m. This i s
hypo hesis, deno ed as H0,1, assumes ha he announcemen has no signi ican impac on he dis ibu-
ion o CARs o e he pos -e en window. A necessa y condi ion o assess i APPMs ha e no aken place
be o e he SAs, is he absence o signi ican CARs ac oss he p e-e en window as p oposed in ou
second hypo hesis, deno ed as H0,2, which supposes ha he announcemen has no signi ican impac
on he dis ibu ion o CARs o e he p e-e en window.
2.2. The ole o inside ading laws
P e ious academic s udies ha e shown he signi icance o en o cing inside ading laws and ound he
legisla ion e ec s would be expec ed when en o cemen mechanisms a e en o ced s ic ly bu no
me ely he es ablishmen o he laws (Bha acha ya & Daouk, 2009; Kwabi e al., 2018; Cline e al., 2021).
Bha acha ya and Daouk (2002) conduc ed a comp ehensi e su ey o inside ading egula ions o e
all coun ies ha had s ock ma ke s a he end o 1998. The au ho s documen ed ha enac men o
inside ading laws alone a e unlikely o be e ec i e wi hou s ic en o cemen . Chen e al. (2017)
ound e idence ha he ini ial en o cemen o inside ading laws is posi i ely associa ed wi h imp o e-
men in capi al alloca ion e iciency.
Inside ading egula ions ha e in igued esea che s who ha e ied o de e mine how inside s exploi
inside ading legisla ion loopholes (Henning, 2015; Dalko & Wang, 2016). Alkhaldi (2016) examined se -
e al inside ading cases in Tadawul and no ed ha hose cases e iewed by he Commi ees o
Resolu ion o Secu i ies Dispu es (CRSD) did no ecei e consis en assessmen p ocess. Alkhaldi (2015) and
Al-Habshan (2017) add essed some ins ances o ma ke misconduc s in Tadawul which in ol e manipula-
ion, poo anspa ency and inside ading cases. The au ho s indica ed ha such misconduc s a e due o
de iciencies in he egula o y amewo k and inac i e eac ions om egula o y egime. In line wi h la e
iew, Aloma i (2020) sc u inised he lack o cla i y p esen s in bo h legal e minology and judicial p ece-
den s pe aining o inside ading egula ions in CML. The au ho c i icized he legal de ini ion o inside
in o ma ion wi h speci ic emphasis on he di e en ia ion be ween ‘use’ e sus ‘possession’indica ing ha
he cen al issue is conce ned wi h ambigui y o whe he he p ohibi ion applies o engaging in ading
based on ma e ial non-public in o ma ion o engaging in ading while possessing such in o ma ion. I he
laws a e p ope ly in oduced and e ec i ely en o ced, in es o s belie e ha hei igh s a e being p o-
ec ed by law which in u n main ains in es o s’con idence (La Po a e al., 2002;2006).
The ecen empi ical s udies on Tadawul, discussed in p e ious sec ion, ha e documen ed he p es-
ence o signi ican ARs be o e he disclosu e da es o ea nings announcemen s as pe Syed and Bajwa
(2018) and di idend dec ease announcemen s (Felimban e al., 2018). The e idence o signi ican p ice
Figu e 1. S ock p ice mo emen s wi h ins ance o inside ading.
COGENT ECONOMICS & FINANCE 5
changes be o e he di idend dec ease announcemen s as well as immedia ely ollowing he boa d mee -
ing suppo Felimban e al. (2018) o conclude ha he GCC egion ma ke s exhibi ine iciency due o
he leakage in o ma ion ahead nega i e news announcemen and he sluggish adjus men o sha e p i-
ces o posi i e news. In con as , Alhassan e al. (2019) examined he in o ma ion con en and he ma -
ke eac ion o qua e ly ea nings announcemen s o all i ms lis ed on Tadawul o he yea s 2007 o
2017 and epo ed ha s ock p ice eac ions we e well-beha ed due o he con inuous de elopmen s in
egula o y pe o mance.
Howe e , he media co e age o he umou s o inside ading p ac ices, inc eased c iminal p osecu-
ions, and he y penal ies imposed by he CMA agains inside ade s has aised conce ns abou
Tadawul’s in eg i y. These a e c i ical p oblems ha could discou age in es o s’pa icipa ion and pose a
h ea o he success o he goals ela ed o he de elopmen o he capi al ma ke . In hei empi ical
in es iga ion o he impac o go e nance mechanisms and owne ship s uc u e on o eign in es o s’
decision o all non- inancial i ms lis ed in Tadawul in 2019, Bajahe e al. (2022) indica ed ha he exis -
ing changes in go e nance and capi al ma ke egula ions wi hin Saudi A abia may no be adequa e in
e ms o inducing ins i u ional o eign in es men . Algaeed (2021) sugges ed ha he pe o mance o
he Saudi capi al ma ke wi h ega ds o i s con ibu ion and p omo ion owa ds economic de elopmen
emains subop imal. I could be a gued ha he weak go e nance o capi al ma ke s can esul less cap-
i al alloca ion e iciency and aises in es o s’conce n abou hei in es men s sa e y.
The e is e idence showing ha coun ies wi h s ic e inside ading ules and s ong en o cemen
ha e been success ul in educing inside ading ac i i ies (Bha acha ya & Daouk, 2002; Zhang & Zhang,
2018). The amended egula o y changes ins i u ed wi h he inancial e o ms in 2016 we e c ea ed o
s eng hen he MCR, comba s ma ke misconduc , p omp s in es o s’con idence and u he align he
ma ke condi ion wi h global s anda ds. The e ec s o hese amendmen s on po en ial inside ading
p ac ices a e assessed he e by es ima ing and compa ing he Tadawul’s MCM be o e and a e he in o-
duc ion o new egula o y changes. The MCM has been used by he Uni ed Kingdom’s Financial Conduc
Au ho i y (FCA) o examine he impac o he Financial Se ices and Ma ke s Ac (FSMA) on he le el o
inside ading. The FCA pe o med h ee s udies o MCM o he i ms lis ed on he UK ma ke and p o-
ided annual upda es o he measu e om 2000 o 2013 (Dubow & Mon ei o, 2006; Mon ei o e al., 2007;
Goldman e al., 2014). Simila ly, he Aus alian Secu i ies and In es men s Commission (ASIC, 2016) and
(ASIC, 2019) applied he MCM o assess he cleanliness o he Aus alian equi y ma ke s a e he ans e o
ma ke supe ision. The e o e, o examine whe he he new egula o y changes succeeded in educing he
le el o po en ial inside ading in Tadawul, we u ilise he MCM which es ima es he p opo ion o he SAs
ha we e p eceded by APPMs. The s a is ical signi icance o he di e ence is assessed by pe o ming a z-
es agains he null hypo hesis o being no signi ican changes in he a io o APPMs be ween bo h pe i-
ods. This leads o a mo e p ecise p edic ion as s a ed in ou hi d null hypo hesis, deno ed as H0,3, which
assumes ha he di e ence in MCM be ween wo pe iods is no s a is ically signi ican .
3. Sample and da a desc ip ion
This s udy uses seconda y da a o i ms’public announcemen s and daily s ock p ices ac oss all sec o s
in he Tadawul. The sample pe iod spans om 2011 o 2020 and is di ided in o wo pe iods. The i s
pe iod co e s he p e- inancial e o ms pe iod which s a s om Ap il 26, 2011, o Ap il 25, 2016. The
second pe iod encompasses he pos - inancial e o ms pe iod, om Ap il 26, 2016, o Ap il 25, 2020. The
selec ion o his pe iod coincides wi h he a o ans o ma ions ha he Tadawul has wi nessed such
as educing ba ie s o o eign in es men s in 2015,
3
obliga ing aded companies o adop he
In e na ional Financial Repo ing S anda ds (IFRS) in 2017,
4
he launch o inancial e o ms in 2016, and
he inclusion o he Tadawul in he majo global inancial indices om 2018 o 2020.
5
The p ima y
sou ce o ou s udy da a is he Ma ke Da a P emium Repo s Da abase (MDPRD), a ailable on he o i-
cial s ock exchange websi e (Tadawul). The Tadawul designed he E-Re e ence Da a Sys em which has
se e al da abases.
6
One o he da abases is he MDPRD which is a eliable sou ce o in o ma ion p o id-
ing comp ehensi e his o ical inancial da a o he Saudi capi al ma ke . The da a we e collec ed by con-
side ing he selec ion c i e ia ha in ol ed es ic ions imposed by da a a ailabili y as ou lined in he
ollowing subsec ion.
6 A. ALQURAYN ET AL.
3.1. Selec ion c i e ia
The p esen s udy equi es da a on i ms announcemen s and hei ela ed secu i ies du ing he ele an
pe iod. The sample o announcemen s is es ic ed o include unscheduled i ms announcemen s pub-
lished by issue s du ing he ele an pe iod. The jus i ica ions o es ic ing he selec ion o unscheduled
announcemen s s em om hei me i o being unlikely an icipa ed, bu hey a e ypically known by co -
po a e inside s. O he ypes o i ms announcemen s like di idends o ea nings announcemen s we e
excluded because hey a e o en p escheduled and usually subjec o explici inside ading emba go
(Cohen e al., 2012). Impo an ly, when ou analysis shows ha APPMs occu ed p io o scheduled
e en s, one may a gue ha hese APPMs a e no d i en by po en ial inside ading ac i i ies, bu a he
by he ac ha he scheduled announcemen s a e p edic able. Fu he mo e, he p ocess o p ice disco -
e y p eceding scheduled e en s may be a ibu ed o he ac i i ies o sophis ica ed ade s which a e
mo i a ed by hei acquisi ion o in o ma ion and/o he in o ma ion p o ided by sell-side analys s
(Welle , 2018; Chen e al., 2020). Howe e , APPMs ha occu ed be o e unscheduled announcemen s a e
mo e likely due o inside ading ac i i ies. The selec ion was limi ed o majo unscheduled e en s ha
ell unde he heading o ‘me ge , acquisi ion, akeo e , awa ding con ac ’and wo subse s o unsched-
uled, ‘good news’and ‘bad news’announcemen s. The da a se o each i m announcemen was manu-
ally documen ed o he millisecond. This iming was c i ical o ou analysis because i he
announcemen occu ed ou side o ading hou s, he da e o he announcemen could be misiden i ied.
In hese cases, he ollowing ading day was designa ed as he e en day. The daily s ock p ices we e
in he o m o adjus ed closing p ices. Addi ionally, he ollowing selec ion c i e ia was made o a i e a
a clean sample:
1. All i ms mus ha e been lis ed on Tadawul and published unscheduled announcemen s du ing he
ele an pe iod.
2. Each announcemen mus include he i m’s s ock p ice, announcemen da e, ime, heading, and
con en .
3. Secu i ies o he i ms mus ha e been ac i ely aded du ing he es ima ion and e en windows
(253 ading days).
4. S ocks ha made announcemen s du ing he ele an pe iod, including hose ha we e la e
delis ed, and ha e enough da a on daily p ices o he es ima ion window and e en window we e
included.
The inal sample collec ed du ing he ele an pe iod consis s o 1,958 unscheduled announcemen s.
The e we e 761 announcemen s d awn om 124 companies ac oss he p e- inancial e o ms pe iod and
1,197 announcemen s om 178 companies o e he pos - inancial e o ms pe iod. Table 1 p o ides a
desc ip i e o e iew o he numbe s and ypes o announcemen s wi hin he ele an pe iod.
Table 1. O e iew o he i ms announcemen s sample du ing he ele an pe iod.
Rele an pe iod Yea No/yea
Type o announcemen s
Acquisi ion Takeo e Awa ding con ac Me ge Good news Bad news
P e- inancial e o ms 2011 106 12 14 22 3 49 6
2012 145 13 8 40 6 71 7
2013 144 10 10 40 9 67 8
2014 177 19 15 41 7 82 13
2015 137 16 15 38 0 62 6
2016 52 4 5 6 0 35 2
To al 1s hal 761 74 67 187 25 366 42
Pos - inancial e o ms 2016 173 14 11 63 1 77 7
2017 262 14 8 76 24 128 12
2018 288 22 11 89 21 137 8
2019 351 29 16 86 28 176 16
2020 123 12 5 17 14 69 6
To al 2nd hal 1197 91 51 331 88 587 49
No e. In his able we documen ed he numbe o e en s pe yea (No/yea ), he o al numbe o he e en s analysed du ing he ele an
pe iod. The yea s a s 26 h Ap il and ends 25 h Ap il.
COGENT ECONOMICS & FINANCE 7
e en window CARs a e used o make in e ences o whe he he abno mal p e-announcemen p ice
mo emen s (APPMs) ha e aken place ahead o he SAs.
Table 4 and Table 6 epo he numbe o e en s ha me ou s a is ical h eshold o being SAs and
p eceded by APPMs o e he p e- inancial e o ms and he pos - inancial e o ms pe iods, espec i ely.
In o he wo ds, hese empi ical indings do no pe mi he ejec ion o H0,1and H0,2:On he o he hand,
Table 5 and Table 7 show he e en s o which he H0,1which assumes ha he e en had no impac
on dis ibu ion o CARs o e he pos -e en window was ejec ed; howe e , we ound no e idence o
suppo H0,2conce ning wi h he exis ence o s a is ically signi ican APPMs. The da a epo ed in
Table 5 ela e o he analysis ou comes o e he p e- inancial e o ms pe iods, while he indings o he
pos - inancial e o ms pe iod a e shown in Table 7.
6. Conclusion
The s udy es ima ed he le el o po en ial inside aining in Tadawul using he MCM o examine he
ex en o which APPMs we e de ec ed ahead o 1,958 unscheduled announcemen s made by i ms lis ed
in Tadawul om 2011 o 2020. The e en s udy app oach was conduc ed o assess he impac o an
e en on s ock e u ns. We used he ma ke model o es ima e he s ock ARs. We compu ed he CARs
and employed he boo s apping echnique o make in e ences on whe he he CARs du ing he e en
Table 7. The CARs o he e en s ha we e ound s a is ically signi ican o be classi ied as SAs, bu hey we e no
p eceded by APPMs du ing he pos - inancial e o ms pe iod.
No. o E en s
Ac ual pos -e en CARs
(−2,þ2)
Sig. a 1%
Simula ed pos -e en CARs Ac ual p e-e en CARs
(−2,−1)
NS. a 10%
Simula ed p e-e en CARs
0.5% quan ile 99.5% quan ile 90% quan ile 10% quan ile
1 13.07 8.37 −7.68 0.82 2.64 −2.85
2 19.52 9.40 −8.70 −0.05 3.65 −3.20
3−15.15 13.07 −9.44 −3.14 4.69 −3.21
4 10.89 8.03 −6.71 −0.98 3.30 −2.68
5−11.97 13.70 −9.64 1.27 5.07 −4.06
6 19.78 8.93 −8.34 0.40 3.55 −3.17
7 8.67 5.87 −5.19 −0.19 2.47 −2.28
8−7.10 6.90 −6.70 0.72 3.04 −3.01
9 7.22 6.09 −5.04 0.88 2.19 −1.94
10 7.45 6.04 −5.78 −0.47 2.41 −2.12
11 −14.16 13.01 −11.09 0.41 4.13 −3.36
12 −13.38 16.48 −12.61 −0.69 6.95 −5.24
13 −13.41 14.68 −12.49 −4.57 5.91 −5.15
14 20.22 12.82 −9.62 1.59 4.77 −3.97
15 22.44 6.17 −7.23 1.93 2.74 −2.76
16 10.88 10.04 −7.31 −0.67 3.99 −3.20
17 13.94 13.16 −9.08 0.03 5.58 −3.64
18 12.93 11.96 −9.11 1.50 4.45 −3.17
19 13.37 7.33 −8.43 0.98 3.29 −2.99
20 5.50 5.24 −4.89 1.64 2.22 −2.17
21 22.05 10.43 −11.52 1.53 4.12 −4.70
22 −10.22 8.18 −7.34 −1.46 3.48 −3.28
23 −15.68 11.20 −8.31 −1.94 4.05 −3.63
24 −10.15 11.26 −8.00 −1.61 4.22 −3.06
25 19.63 8.31 −8.17 1.16 3.34 −3.73
26 −6.18 4.69 −5.63 0.46 2.13 −2.27
27 −7.49 3.60 −4.13 −0.83 1.64 −1.52
28 4.11 3.95 −4.10 0.90 1.55 −1.57
29 −10.10 10.75 −8.19 1.70 4.04 −3.62
30 7.78 7.08 −6.53 0.91 2.86 −2.77
31 −9.36 12.65 −7.74 −3.11 5.15 −3.35
32 −13.52 7.14 −6.09 −1.32 1.70 −2.90
33 20.60 13.51 −11.91 3.88 5.42 −4.28
34 −11.20 10.35 −6.34 −0.43 3.65 −2.74
35 −16.06 12.17 −8.71 −1.35 5.14 −3.89
36 −21.17 13.42 −9.75 −2.27 5.17 −3.97
37 7.93 7.40 −8.83 1.90 2.98 −2.65
38 −8.18 8.90 −3.30 −3.23 3.81 −3.43
39 −13.41 11.22 −9.93 −1.44 3.30 −3.19
40 23.76 10.13 −7.07 3.03 4.31 −3.12
No e. The no e shown in he Table 5 applies o he analysis esul s epo ed in his able.
14 A. ALQURAYN ET AL.
window being examined we e s a is ically signi ican . We calcula ed he MCM as he a io o i ms e en s
o which APPMs in daily s ock p ices we e obse ed p io o he elease o SAs.
The indings sugges ha he p opo ion o APPMs de ec ed ahead o SAs was lowe a e he in oduc-
ion o inancial e o ms. The Tadawul’s MCM shows ha 56.36% o SAs we e p eceded by APPMs ac oss
he p e- inancial e o ms pe iod compa ed o 45.2% a e inancial e o ms we e passed. The analysis ep e-
sen s ha despi e he e is a gene al imp o emen , as e idenced by 11.16% decline in he a io o APPMs,
he s a is ics o he subsequen pe iod we e no s a is ically lowe han he p eceding pe iod. A possible
explana ion o his could be ha he new egula o y changes in oduced wi h inancial e o ms ha e no
ye had a s a is ically signi ican e ec in educing he le el o po en ial inside ading ac i i ies.
This s udy p o ides empi ical indings wi h impo an implica ions o policymake s, i ms, and in es -
o s. The indings could be bene icial in no i ying he egula o s’en o cemen mechanism o s eng hen
he ma ke su eillance and comba ma ke misconduc by implemen ing disciplina y ac ions mo e
ac i ely. The esul s ale i ms o abide by CML ules and adhe e he disclosu es and anspa ency poli-
cies. In es o s can bene i om he s udy as i supplies use ul in o ma ion abou he ma ke condi ions
ega ding inside ading p ac ices.
The scope o ou s udy is limi ed o pe o m an e en s udy o s ock e u ns; howe e , conduc ing an
e en s udy o ading olumes would ein o ce he e u n analysis. Ano he limi a ion o ou analysis is
he use o he OLS ma ke model. The e o e, ano he di ec ion o u u e esea ch is o use se e al mod-
els and examine hei di e ences. Mo eo e , i may be in e es ing o compa e he eac ions o scheduled
announcemen s e sus unscheduled announcemen s.
No es
1. In he 2018 Annual Repo published by he CMA, Table 51 on page 158 shows he o al amoun s o inancial
penal ies imposed by he CMA and he CRSD in 2018 agains iola o s o he laws and egula ions. Penal ies o
inside ading we e he highes and we e se a mo e 325,222,919 SR (Saudi Riyal). The epo is a ailable a
h ps://cma.o g.sa/en/Ma ke /Repo s/Documen s/cma_2018_ epo .pd .
2. The CMA’s announcemen is a ailable a h ps://cma.o g.sa/en/Ma ke /News/pages/CMA_N_2942.aspx.
3. The ele an in o ma ion is a ailable a h ps://cma.o g.sa/en/Ma ke /QFI/Pages/de aul .aspx.
4. h ps://www.cma.o g.sa/en/ma ke /news/pages/cma_n_2107.aspx.
5. The inclusion o FTSE Russell is a ailable a h ps://cma.o g.sa/en/MediaCen e /PR/Pages/FTSERussell.aspx, and
he inclusion o MSCI eme ging ma ke is a aila le a h ps://www.msci.com/msci-saudi-a abia-indexes.
6. h ps://www.saudiexchange.sa/wps/po al/ adawul/knowledge-cen e /abou /e e e ence-da a?locale=en.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
Abou he au ho s
Abdul hman Alqu ayn is a lec u e a King Khalid Uni e si y and a PhD candida e a Vic o ia Uni e si y, Melbou ne,
Aus alia. He had his i s deg ee in Business and Adminis a ion in 2011. La e on, he ob ained his mas e ’sin
inance in 2016. He has wo ked a King Khalid Uni e si y as a lec u e and a chai man o Business and
Adminis a ion Depa men .
Nada Kulend an is an Hono a y Fellow a Vic o ia Uni e si y, Melbou ne, Aus alia. His a ea o expe ise includes
econome ic modelling, inancial ma ke s o ecas ing, and ola ili y o ecas ing. He has made a sus ained con ibu-
ion in his a ea o esea ch ha esul ed in he publica ion o esea ch a icles in high impac jou nals.
Ranji h Ihalanayake is he Head o Pos g adua e Cou ses and a Senio Lec u e in Economics and Finance in he
Business School o Vic o ia Uni e si y, Melbou ne, Aus alia. His cu en esea ch in e es lies in he a eas o o eign
di ec in es men and economic g ow h, wo king capi al managemen in small businesses and bank pe o mance
managemen .
ORCID
Abdul hman Alqu ayn h p://o cid.o g/0000-0001-7694-6191
COGENT ECONOMICS & FINANCE 15
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