Can an investor gain positive abnormal return by mimicking insider transactions?

Abstract

Background: The efficient market hypothesis is a theory that has been widely debated and studied during the years. Some agree with the theory, but some disagree. One way to study the efficient market hypothesis is by looking at the possibility to gain positive abnormal return on the stock market. A lot of studies have been made throughout the years but mainly in bigger countries and markets like USA and UK and the results vary. This makes it interesting to study the Swedish market to see to what extent insiders can exploit insider information and the markets efficiency to price these insider transactions. The study is based on insider transactions in all companies on OMXS30 during the period 2015- 01-01 to 2020-10-30. We also investigate if there is a correlation between abnormal return and transaction size, transaction type or the position of the insider. Question at issue: Can an investor gain positive abnormal return by mimicking insider transactions of firms in OMXS30? Methodology: An event study is done where the price of each stock is compared to OMXS30, when an insider transaction has been made, over a time period of 20, 60 and 120 business days. Further, we investigate if the results are statistically significant by doing a t-test with a 95% significance level. The study’s null hypothesis and alternative hypothesis are the following: H0: It is not possible to gain positive abnormal return by mimicking insiders. HA: It is possible to gain positive abnormal return by mimicking insiders. Results: The study shows that it is possible to gain positive abnormal return on OMXS30, but only by mimicking the sell transactions of insiders. It also shows that the mimicking of any chief officer position will generate the highest short-term return, also, the highest transaction size points to the highest short-term return.