Insider Trading and Market Efficiency: Evidence from the Swedish Stock Market

Abstract

This thesis investigates whether insider trading announcements influence stock prices in the Swedish stock market and examines the market’s efficiency in processing such information. Or more specifically, challenges the semi-strong form of market efficiency. A sample of 30 insider transactions are analyzed, divided equally into 15 buy-side and sell-side events. Using an event study methodology, average abnormal return (AAR) and cumulative average abnormal return (CAAR) are computed to measure market reactions surrounding the announcement dates. While the AAR results are statistically insignificant for both groups, the CAAR analysis reveals statistically significant and directional price movements: insider sales are followed by sustained negative performance, whereas insider purchases lead to a delayed but consistent upward trend. These findings indicate that the Swedish market does not incorporate insider information immediately, but rather adjusts gradually over time. The results challenge the assumptions of semi-strong form of market efficiency and suggest the existence of exploitable trading opportunities based on public insider disclosures. Our conclusions contribute to the literature on market efficiency, while also offering practical implications for investors seeking to interpret insider behavior.