Market Reactions to Insider Trading and Repurchases: An Empirical Study Measuring Abnormal Returns on the Oslo Stock Exchange

Abstract

This thesis investigates capital market efficiency by investigating market reactions to insider trading and repurchase announcements on the Oslo Stock Exchange, both separately and conjointly. Previous research has indicated lack of market efficiency with regards to such announcements. Our research differs from existing literature by examining a more recent timeperiod and studying insider trading and repurchase announcements conjointly on the Oslo Stock Exchange. There are several findings in our study. Firstly, for insider trading announcements, we find significant short-term abnormal returns of 1,00% across all insider buy sizes, and 2,55% for large monetary insider buys. Second, we also find significant longterm abnormal returns associated to insider buying and insider selling, at 3,07% and -2,68% respectively. Long-term abnormal returns increase for larger monetary sized trades for both buys and sells, suggesting a positive relationship between abnormal returns and insider trade size. Moreover, we find evidence of short-term abnormal returns associated with repurchase announcements of 1,84% and show that the insider net purchase ratio1 decreases as time approaches announcement date, suggesting decreasing insider trading activity. Finally, we show that a one unit increase in the net purchase ratio can be associated to a 1,73% increase of abnormal returns in a buy-and-hold strategy, suggesting a positive relationship between insider net purchasing and announcement returns.