Characteristics of informative insider trades - Evidence from the Swedish Stock Market

Sammanfattning: In this thesis we have investigated how outside investors can extract informational content from insider trades on the Stockholm Stock Exchange. We estimated abnormal returns using the market model and firm specific portfolios. In general, we found that outside investors could make abnormal returns by mimicking insider deals in the long-run. Furthermore, we noted that the informational value of an insider deal is determined by certain characteristics. First, we found small and mid-cap firms to enjoy abnormal returns, whereas abnormal returns in large-cap companies are nonexistent. Second, deals that change the insider's holding substantially predict future abnormal returns. Third, securities that are bought by two or more insiders forecast future abnormal returns. Fourth, we found neither the SEK value of the transaction nor opportunistic trades to be associated with abnormal returns. Fifth, abnormal returns could not be linked to a specific insider category, except the case of large shareholders who make negative abnormal returns. Thus, we conclude that the characteristics of insider deals are more important than the category of insider who is trading. Our results are in line with recent literature and question the semi-strong efficient market hypothesis.