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Decoding insider trades : an empirical analysis of how the Swedish stock market reacts to insider trading activity

Maritvold, Eirik; Flaa, Tor-Inge
Master thesis
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URI
http://hdl.handle.net/11250/301009
Date
2015
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  • Master Thesis [4657]
Abstract
In our study we explore and analyze 6 627 insider trades made on the NASDAQ OMX

Stockholm between 2010 and 2014. We ask if publicly available information on insider

trading can give insight into where stock prices will head in the future and if outside

investors can earn abnormal returns by creating portfolios based on such information. We

conduct our research using the event-study methodology as described by MacKinlay (1997)

and show that insiders are better informed about the overall future performance of their

company, indicating a violation of the semi-strong form market efficiency hypothesis. We

show that different firm characteristics such as market capitalization, financial leverage and

industry, together with individual characteristics such as insider type and traded volume, can

emphasize differences in abnormal returns following insider trades. Based on our findings

we create three rule-based insider portfolios. We show that we are able to gain risk-adjusted

returns above the market, but when controlling for transaction costs the risk-adjusted return

vanish. Our study has implications for market efficiency and offers important insights for

those who seek to earn higher returns by following strategies based on the publication of

insider trades.

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