Implications of Insider Trading for Market Efficiency: Empirical Evidence from the Swedish Stock Market

Detta är en C-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: Although a large research body pertains to abnormal returns in insider trading and market efficiency, little research has looked into the actual directional impact of insider trading on market efficiency. This study sets out to examine if insider trading activity promotes or impairs market efficiency. As market efficiency is not directly observable, the level of autocorrelation in share pricing has been introduced as a proxy in line with the Random Walk Hypothesis. The proxy is quantified as the multiple variance ratio test statistic and constitutes the dependent variable, insider trading being the main independent variable. The variables, computed for a sample of 149 companies listed on the OMX Stockholm exchange in the period 2004-2014, are regressed using a GLS framework. The regression output supports that insider trading activity results in more prevalent share price autocorrelation implying that market efficiency is impaired. It is also concluded that insider buy transactions have a stronger negative impact on market efficiency than insider selling. These findings contribute to the understanding of insider trading dynamics and has interesting implications for market efficiency theory.

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