Insider Trading

2041 Words9 Pages
Insider trading relates the investment behavior of corporate insiders with their own stock. Insider trading topic not only attracts finance literature (see, e.g., Lorie and Niederhoffer 1968, Jaffe 1974, Seyhun 1986, 1998, Rozeff and Zaman 1988, Lin and Howe 1990, and Lakonishok and Lee 2001), but also attracts law and economics literature (see, e.g., Manna 1966, Georgeakopoulos 1993, and Carlton and Fischel 1983). The finance literature on insider trading had started with an examination of the strong market efficiency hypothesis. Subsequently, researchers gave their attention towards the determinations of insider trades’ profitability. Furthermore, another set of researcher also gave an attempt to find the information contents of…show more content…
He also investigated determinates of insider trades’ abnormal return. And he also found that (1) the abnormal return of firm officers’ trade (both buy and sale) was higher than shareholders’ trade; hence he concluded that an insider who is more close to the firm’s operation activity has greater information content in his trades than other group of insiders (2) there is negative relationship between the firm size and the abnormal return; hence, he concluded that large firms have more exposure of regulatory scrutiny and analysts than small firms. Therefore, large firms’ stock is efficiently priced than small firms’ stock. Finally, he found that the abnormal returns around the reporting days are also statistically significant for both buy and sale trades. Lakonishok and Lee (2001) extended insider trading literature by conducting a comprehensive investigation of the information content of insider trades on the U.S market. They covered all insider trades including private trades and option exercise for the 1975 to 1995 period. However, they did not consider those stocks whose stock prices are less than $2 at the beginning of the calendar year. They divided insider trades sample into three groups. Management group includes CEOs, CFOs and directors, large shareholder group who hold more than 10% of shares, and others are all neither manager nor large shareholders. They divided all firms of the sample into three
Get Access