Effect of Insider Trading on Market Efficiency

Abstract

The research has basically determined relationship between insider trading and its significant effect on market efficiency based on different informational levels. Various insider data was adopted specifically from Swedish market regarding stock prices, capitalization of market, and GDP as well. The main focus of the study was to address how informationally advantaged and disadvantaged insiders impact allocation of information in the stock prices. In this way, various theories and models were also studied to measure its impact on Swedish market. Since the research gathered empirical data, it has only focused on certain companies in varying sizes in the period of 2003 to 2017. Along with this, different statistical tests were also performed to ensure that assumed facts and scenarios have certain relevancy with the literature and past concepts. From the results, it was found that there is a negative effect of insider purchasing on firms’ informational efficiency whereas positive effect of insider selling. It is concluded that when fair dealing is done in the markets, traders are expected to perform efficiently.

DOI: 10.7176/RJFA/11-24-03

Publication date: December 31^st 2020