Insider Trades' Impact on Stock Returns
Alho, Mikko (2021-04-15)
Alho, Mikko
15.04.2021
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2021041510551
https://urn.fi/URN:NBN:fi-fe2021041510551
Tiivistelmä
The purpose of this study is to examine whether insiders can earn abnormal returns by their trades in the Finnish stock market. Insider trading has been researched for decades and the first studies are from the late 1960s. Insider trading can be considered as one the most profitable anomalies. Insiders’ reasons to trade their own companies’ stocks might be liquidity needs or they may want to benefit from undervalued market prices. However, insiders might have non-public information and thus be better informed of the company’s situation and prospects than other investors.
The theoretical framework contains a review of the previous studies and regulation of insider trading. Also, the difference between legal and illegal insider trading is presented. Insider trading’s profitability is an evidence against efficient markets theory. Therefore, the theory is presented in theoretical part. The empirical part consists of the data and methodology which is used in this study. The data which is used in the study contains insiders’ transactions in Helsinki OMX from July 2016 to July 2019. This thesis deploys the event study methodology. Abnormal returns are calculated separately for purchases and disposals. Also, the data is further divided into smaller groups based on the firm size and the type of the insider.
The results of this study show that the insiders earned abnormal returns due to their trades. After insiders’ purchases, stock prices increased abnormally 1,68% (t-statistics 5,65) in 30 days. The impact was the opposite after insiders’ disposals. Stock prices decreased abnormally -2,00% (t-statistics -4,41) in 30 days. The impact on stock returns was higher when insiders from small cap companies purchased or sold their stocks. The type of the insider has also an impact on the stock prices. Overall, insiders earned abnormal returns from July 2016 to July 2019 in the Finnish stock
The theoretical framework contains a review of the previous studies and regulation of insider trading. Also, the difference between legal and illegal insider trading is presented. Insider trading’s profitability is an evidence against efficient markets theory. Therefore, the theory is presented in theoretical part. The empirical part consists of the data and methodology which is used in this study. The data which is used in the study contains insiders’ transactions in Helsinki OMX from July 2016 to July 2019. This thesis deploys the event study methodology. Abnormal returns are calculated separately for purchases and disposals. Also, the data is further divided into smaller groups based on the firm size and the type of the insider.
The results of this study show that the insiders earned abnormal returns due to their trades. After insiders’ purchases, stock prices increased abnormally 1,68% (t-statistics 5,65) in 30 days. The impact was the opposite after insiders’ disposals. Stock prices decreased abnormally -2,00% (t-statistics -4,41) in 30 days. The impact on stock returns was higher when insiders from small cap companies purchased or sold their stocks. The type of the insider has also an impact on the stock prices. Overall, insiders earned abnormal returns from July 2016 to July 2019 in the Finnish stock