Insider Trading - An Efficiency Contributor?

• Main Authors: Söderberg, Gustav, Nyström, Rikard
• Format: Others
• Language: English
• Published: Umeå universitet, Företagsekonomi 2013
• Subjects: Insider trading; Efficient market hypothesis; Adaptive market hypothesis; Variance ratio test
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-73596

This research has studied the relationship between insider trading activity and its effect on the level of informational efficiency. The authors have used insider data from Finansinspektionen and data regarding stock prices, market capitalization and GDP from Thomson Reuters Datastream. The sample includes 193 companies on the Swedish stock exchange for a period of 10 years. A Variance Ratio test employed on moving sub-sample windows was used to establish the level of time-varying informational efficiency, which subsequently was used in an OLS-regression as a dependent variable. The result of the regression implies a negative effect on firm price information efficiency by insider purchasing, while selling has a positive effect. This can be concluded using a confidence level of 99%. The results are interesting since they imply an asymmetrical effect of insider trading on informational efficiency, while current insider legislation treats buying and selling by insiders equal. Thus, the results are of interest in future adjustments of laws regulating insider trading.