Probability of Informed Trading (PIN) versus Disclosure of Insider Trading: the Case of JBS S.A. (JBSS3) with High-Frequency Trading Models

Abstract

Objective: This work has as main objective to identify the buy or sale procedure in the JBSS3 stock, from JBS S.A. and to introduce a methodology of analysis of operations based on the asymmetric information proxy captured by the Probability of Informed Trading (PIN). Methodology: JBS S.A. is used as case in this research as it was the first case of arrest for insider trading in Brazil. In this way, some mathematical models were used to estimate the PIN to check whether it was possible to anticipate the movements of a person with access to private information. Main results: The results indicate that a) the mandatory and monthly report required by the capital market regulator is of little use to protect the Brazilian investor, b) even with an advanced mathematical model, it was not possible to obtain abnormal returns anticipating insider operations, but c) the PIN mathematical model generated better results than the report required by the regulator. Academic contributions: It was possible to insert another contribution regarding the use of computational tools in the literature on the financial market, as a means of promoting and improving market efficiency. Practical contributions: Investors who benefit from using the results of this research to protect themselves from adverse selection and moral hazard, and the capital market regulator can use similar techniques to expand market surveillance.