eThesis - Kauppakorkeakoulun sähköiset gradut

PURPOSE OF THE STUDY The purpose of the study is to examine whether the insiders of listed Finnish companies have been able to earn abnormal returns on the market by trading with their own companies shares. Moreover the purpose is to investigate whether these transactions would have been informative for outside insider, thus examining whether the outsiders could have realized abnormal returns by mimicking the examined trades made by insiders. The theoretical part of the study provides background for the empirical part by covering the legal environment, related theories and previous research on the subject.

DATA The used data consist from transactions made in 114 Nasdaq OMX Helsinki listed companies by the company insiders during time period from 1.7.2005 to 28.2.2010. The data was hand collected from Euroclear Finland’s EFI Sire system. The data includes all transactions, at an order level, made by the insider himself and transactions made by his related persons and their control and interest organizations. Only trades in equities are considered, and the data has been carefully cleaned from executive compensation schemes, thus making it unique. The transactions are netted daily together at a company level, and consists from 4587 company level insider trading days, from which 2569 are purchase days and 2018 are sales days. The share price data was obtained from Data Stream database.

RESULTS Corporate insiders have realized significant abnormal returns from trading with their own companies’ shares during the time period examined. The cumulative abnormal returns (CARs) from 30-day period before the insider transaction day amounted to 1.67% for the overall sample including both purchases and sales. For the overall sample, the post-transaction cumulative abnormal returns were statistically significant only in case of first five days following the insider purchases and amounted to 0.25%. Furthermore, a significant positive relation was found between insider purchases and firm size, with insider transactions and the monetary value of the transaction, with clusterization of insider transactions and with operational management’s tendency to invest according to the contrarian investment style. The results also indicate that especially the largest trades made by corporate insiders in largest companies examined would have been informative for outside investors. In general, the results are mainly in line with the earlier international research.