Insider trading and abnormal return on the Swedish stock market

Title: Insider trading and abnormal return on the Swedish stock market Seminar Date: 2015-05-25 Course: FEKN90 Examensarbete på civilekonomprogrammet (30hp) Authors: Philip Ek and Karin Erlinder Advisor: Rikard Larsson Purpose: By using classifications of different kinds of insiders we wish to en-lighten this area of study with empirical evidence of how insiders on the Swedish Stock Exchange yield abnormal returns. Furthermore, and perhaps more importantly, we seek to introduce a classification of insider transaction not used on Swedish data before with cluster transactions. Ultimately, the purpose is to see in what sense outside investor are able to earn abnormal returns by imitating the different classifications of insiders. Methodology: This study is conducted with a quantitative approach and has used an event study framework. A division of the original sample is made in form of firm size, industry classification and phase of business cy-cle. Statistical tests are performed to determine if the results are sig-nificant. Theoretical perspectives: Theories covered in the study are for example information asym-metry, efficient market hypothesis and signalling hypothesis. Empirical foundation: 125 657 buy- and sell transactions made by insiders on NASDAQ OMX Stockholm between the years of 2005-2014 are studied. The original sample has been scanned for cluster formation, where 2 659 were detected. The study investigates all transactions undertaken by insiders from Large-, Mid- and Small Cap-companies. Also, delisted companies are included. Conclusion: Cluster formations prove to be a strong signal for outsiders in terms earning abnormal returns. Mid- and Small Cap-companies show larg-er abnormal returns than Large Cap-companies, thus leading to the conclusion of a prevailing information asymmetry across smaller firms. Transactions conducted during years of expansion are more informative than those performed during years of recession. Sales clusters have a larger explanatory power than purchase clusters