When the Rules Change the Game : A Case Study Analysis of Market Reactions to the Implementation of EU’s Market Abuse Regulation on the Oslo Stock Exchange

Abstract

This paper investigates the short-term abnormal return among primary insiders at the Oslo Stock Exchange following the implementation of the EU Market Abuse Regulation framework. The regulatory changes involve stricter regulation governing market manipulation, false disclosure of inside information, and reporting standards, intending to ensure the financial market’s attractiveness in Norway. This study expands on previous literature and provides contributing evidence on how regulatory changes affect the short-term market reaction. Initially, evidence shows that the abnormal return among primary insiders declines significantly from 4.23% to 2.70% after the government announces the future introduction of the new framework, before declining to 1.04% after the implementation. A decline in short-term market reaction implies fewer opportunities to exploit material non-public information. Further, we observe that the results obtained in our report contradict that the size of the transaction solely drives the abnormal return, as it stipulates that “Medium-sized” transactions lead to greater short-term market reactions. Evidence supports that the ability of primary insiders to achieve abnormal returns is influenced by their position; mainly among “Board Members” and “Executives”. We also find that purchase transaction leads to a positive abnormal return in the short term. Conversely, sales transactions often lead to negative market reactions, as other market participants struggle to differentiate between the anticipation of negative updates regarding the firm’s performance and actions taken by primary insiders for diversification or liquidity purposes. Lastly, we discuss policy implications, such as alternative investment strategies among primary insiders and the urge to circumvent the regulatory changes, as possible implications to the new EU MAR framework.