Illegal insider trading on Oslo stock exchange : an empirical investigation

Abstract

This thesis investigate whether substantial illegal insider trading occurs prior to mergers & acquisitions (M&A) and seasoned equity offerings (SEO) on Oslo Stock Exchange. By examining stock price dynamics prior to the public announcements of these transactions, we investigate whether there are any abnormalities, indicating illegal insider trading. Our initial findings show a significant buildup in cumulative average abnormal return (CAR) of 4.8 % for the M&A sample. The SEOs are divided by the issuers ex ante stated intended use of proceeds, and we find that approximately half of the total buildup in CAR occurs prior to the public announcement for recapitalization motivated offerings. Furthermore, we examine whether these findings are a result of illegal insider trading or rumors and market anticipation. We introduce Google search volume as a measure of investor attention. High investor attention suggests a degree of rumors and market anticipation about the upcoming event. We find that the pre-announcement buildup in CAR for the M&A sample is mainly driven by rumors about the upcoming event. However, we cannot attribute the same effect to the recapitalization offerings. Finally, we examine whether there are any deal- and firm specific variables that can explain the pre-announcement cumulative abnormal returns (CAR) through a cross-sectional regression analysis. We find that for the M&A sample, Google search volume seems to the most important variable, however for the recapitalization offerings, leverage and profitability appears to explain some of the variation in CAR. Summarized, we find no evidence of illegal insider trading prior to M&A announcements, however our results indicate that there might be some illegal activity prior to recapitalization offerings.