Can Insiders Earn Abnormal Returns? Evidence from the NASDAQ OMX Helsinki in 2012–2013

Abstract

This study examines whether corporate insiders in the NASDAQ OMX Helsinki earned abnormal returns by trading with their own companies shares in the time period of 1.1.2012 – 31.12.2013. The theoretical framework focuses on the legal environment, presenting the insider trading regulation in the U.S, in the European Union and in Finland. Also the arguments for and against regulation, insider trading in practice and insiders’ motivation to trade are discussed in order to provide a solid background for the empirical part.

The data was hand collected from the customer service point of Euroclear Finland’s head office in Helsinki. The data includes 111 listed companies and their insider trading activities. The collected data includes total number of 2657 insider trades. Insider trading was grouped together on a daily level. A trading day with more purchases than sales was classified as a buy-day and a trading day with more sales than purchases was classified as a sell-day. The study sample included total of 1732 trading days of which 930 were buy-days and 802 were sell-days. The benchmark index is the NASDAQ OMX Helsinki price index. The index data as well as the share price data were obtained from the University of Vaasa’s Faculty of Business Studies and the Department of Accounting and Finance.

The employed method was an event study. Market model was used to calculate normal returns for the estimation period [T-200; T-31] and abnormal return for calculating the excess returns. Finally the cumulative abnormal returns were calculated for the total sample and for three sub-groups: type of insider, firm size and different industries. The study results showed significant abnormal returns for insider transactions. The cumulative abnormal returns were 1,58% for the 30 days following the insider trading day for the overall sample. For purchases the post-event CAR was 1,05% and –2,21% for the sales. In three sub-groups, the best insider performance was by board of directors from insider types, mid cap companies from firm size and industrials companies from industries. The results are mostly in line with the previous international studies.