Stock Behavior Before Earnings Surprises and Potential Illegal Insider Trading: A Comparative Analysis of the Scandinavian Exchanges

Abstract

This thesis investigates abnormal stock behavior prior to earnings surprises on the Oslo Stock Exchange (OSE), Nasdaq Stockholm (OMXS), and Nasdaq Copenhagen (OMXC), with a focus on potential illegal insider trading. Utilizing event study methodology, we examine stock price and trading volume patterns during the event window [-10, +1] around earnings announcements from 2010 to 2023, excluding 2020-2021 due to the COVID-19 pandemic. Earnings surprises are categorized by deviations from analyst consensus at thresholds of ±10%, ±20%, and ±40%, resulting in a dataset of approximately 9,000 earnings announcements across 369 companies.

Our analysis reveals significant cumulative average abnormal returns (CAAR) preceding positive earnings surprises, particularly on OMXS and OMXC, with indications of similar patterns on OSE but to a lesser degree. Pre-announcement trading volume is marginally higher on OSE compared to OMXS and OMXC, indicating possible market anticipation. Interestingly, no pre-event CAAR trends are observed for negative earnings surprises, suggesting regulatory constraints on short-selling activity may deter insider trading in such cases.

The study further explores the enforcement of the Market Abuse Regulation (MAR) across the three exchanges. We find no consistent correlation between MAR enforcement rates and indications of illegal insider trading, highlighting potential gaps in regulatory effectiveness.