Insider Trading

When assessing the economic damage to due to Paul Thayer and those that he tipped off about the acquisition of Campbell Taggart, it should be noted that some argue that this kind of insider trading circulates information and forces the stock to its “true value.” If we assume this argument to be flawed, then part of Anheuser-Busch stock dip after the announcement was due to the insider trading and the fact Anheuser-Busch probably paid more to acquire its target. Thayer and his friends trade the Campbell stock for nearly a month before any public announcement of the merger. On July 27 nearly half the volume was insider volume controlled by those individuals who were in violation of rule 14(e)-3 (See exhibit 2). The increased volume might

The weekly performance of IBM stock presented a contestant growth. One highlight of the falling of stock price in the 6th week in the investment period was when IBM presented the 3rd quarter financial report. The investors weren’t satisfied with the profit report which they expected to be better especially when other IT companies were doing well in the 3rd quarter. One mistake I made was that I didn’t follow closely to the financial report of the company; therefore, I missed the peak of the stock price. From this experience, I learned that financial reports and current news are important indicators of the stock price. By following closely to the current event and analyzing the financial report, investors can maximize the profit and also become more familiar to the market.

Even though the information about PIPEs was material inside information, Mark Cuban was not accused as traditional insider information. To qualify as traditional insider trading, there must involve true insiders buying or selling the company’s stock based on material inside information.

Hence, the leadership style of Reed Hastings is extremely important for the purpose of this report and will be the key focus of the research as well. In the beginning of the year 2005, the analysts of Wedbush Securities Stock had place a price targeting at 3 dollars, the trading of which was being done at the price of approximately 11 dollars (Loftus

Insider trading – insider trading is the trading of a corporation’s stock or other securities by individuals with potential access to non-public information about the

““The name of the game, moving money from your clients pocket to your pocket”, Mark stated. “But if you can make your clients money at the same time it’s advantageous to everyone, correct?” “No, Mark replied…Okay, first rule of Wall Street-nobody and I don’t care if you are Warren Buffet or Jimmy Buffet- knows if a stock is going up, down or sideways, least of all stock brokers. But we have to pretend we know.”” (8)

Baruch Lev and Feng Gu authors of “The End of Accounting and The Path Forward for Investors and Managers” indicate that over the past 110 years, the structure and content of financial reports has not changed, and that the role that these reports play in influencing the decisions of investors has greatly diminished. Lev and Gu make a case that non-transaction events that are not captured by the financial reports such as those disclosed through 8-k filings with the Securities and Exchange Commission (“SEC”) have a greater impact on stock prices, and thus more useful to investors. In addition, they suggest that one of reasons for the decline in usefulness of financial reports stems from the increase of estimates that has made its way into these reports (Lev and Gu 2016).

Insider dealing has been affecting the efficiency of stock markets in different places like United States, United Kingdom and Australia. Hong Kong is of no exception. Basically, insider dealing refers to the trading of a corporation’s stock or other securities by individual with potential access to non-public information of the company. The law of insider dealing in Hong Kong provides a much more detailed definition and is very comprehensive. However, when it comes to enforcement, it seems not very effective. In the following, the law of insider dealing in Hong Kong will be summarized. After analyzing the comprehensiveness of the law, the underlying reasons of the difficulty in enforcement will be identified. Some

A public show of Jim Cramer, named Mad Money, broadcast Cramer’s fundamental and technical market analysis in stock markets. His trading stocks had been announced five days before real transaction and would keep 30 days and his trust portfolio, with charity purpose, were open to online viewers. Different from equity firm analysts with interests in recommending stocks, Jim Cramer was an unaffiliated analyst without conflict of interests. The study of this journal test Mad Money trading results during the period of July 28th 2005 to February 9th 2009 by evaluating abnormal returns on the markets on the stocks recommended by Jim Cramer.

For example, Manna (1966) states that insider trading should be allowed because insider trading is the most effective way to compensate to insider to generate new economic information in firm. Hirshleifer() states that for insider, good information is as good as bad information to make profit but this profit may not be related to economic contribution of insiders in corporate. Proponents of insider trading suggest (Carlton and Fischel (1983) that insiders are the most informative member in the market, and by trading, they bring new information to the markets and causing prices to change toward their true value and, therefore, promoting the optimal allocation of resources. On the other hand, Scholars (Benabou and Laroqu, 1992) say that insider trading may provide incentive to corporate insiders either to delay the announcement of price-sensitive information to public or to prevent to release price sensitive information, which in turn makes stock prices less informative. However, Georgakopoulos (1993) argues that restriction on insider trading may have little adverse impact on market efficiency but it reduces the cost of transaction that burdens on uninformed traders

Table I Insider Trading Activity in Campbell Taggart from June 30 to August 2, 1982 The columns of the table give the date, the closing price of Campbell Taggart on the NYSE, the total daily trading volume of Campbell Taggart (in thousands of shares), the number of insider trades, the number of insiders who traded, and the total volume of shares purchased by insiders (in thousands), respectively. In all, the insiders bought shares in Campbell Taggart in 124 transactions, acquiring a total 265,600 shares over 23 trading days.

On further analysis, the book makes it apparent that there is an inherent tendency towards individual gains over the health of the market. As a result, it is easy for big business to direct their resources towards frustrating the efforts of their smaller compatriots in a bid to secure profits. Moreover, this behavior contrasts with the needs of a stable market whereby individuals can benefit from their ability to identify lucrative offers before the competition. Rather, the current system allows larger trading firms to piggyback on the system and contravene on its demand for equitable access to resources by capitalizing on the lack of legislation and the relative newness of the technologies involved. For instance, the justice system had mixed reactions when dealing with issues such as ownership of coding resources such as in Sergey Aleynikov’s case, which necessitates a change in the legal frameworks surrounding the stock trading system. The system is quick to defend the rights of these firms but fails in regulating their competitiveness since they beat the system and create an environment where they profit even if they are not the first to identify stock on which they might make profits.

How does knowledge flow in the financial world and how is it distributed? There had to be others that were willing to give up this information for their own needs and gains. Exactly where do companies look for these leaks and what means are they obtained? “ Rectifying the ambiguous problem of who insiders are furthers this consumer- producer approach by focusing on information flows. Herein we define company insiders as an individual who personally creates insider information.” (Howden, 2014). These insiders who are users of information usually have no specific attachment to the company and are mainly institutional traders or large stockbrokers.

Short selling is the borrowing of shares in companies whose market value is believed to go down. The sellers gain profit when they buy back the shares at a lower price (Investopedia, n.d.). The benefits of short-selling include facilitating market efficience, driving down overprice shares, increasing liquidity of stock markets and exposing financial fraud. The CFA Institute believes that short-selling enables “participants to quickly and accurately adjust securities prices to reflect investor opinions about valuations” (Smith, 2012), hence improving marketing efficiency. It also shortens the time taken to discover corporate misconduct and predict firms who will be involved in financial misconduct (Foster, 2009).

FI’s with large shareholdings are better apt at influencing the performance of investee firms in their portfolios by being a quasi insider and creating knowledge advantage using private information gained through regular meetings (Holland, 1999). Through cooperative means FI’s are able to probe, monitor and direct the corporate strategies, management and financial performance without direct intervention. Private and informal influencing is favored to public interventions as it may affect reputation of all parties involved.