Insider Trading & their chamber of secrets
(2024) NEKN02 20241Department of Economics
- Abstract
- This study investigates the relationship between insider trading activities and share repurchase announcements in the Swedish market. While buybacks and insider trading have been individually studied, their interaction remains underexplored. This research fills the gap by analysing insider trading patterns before buyback announcements and examining the impact on post-announcement market returns. The sample comprises 87 buyback announcements from 42 companies listed on the Stockholm Stock Exchange between 2016 and 2022, matched with peers using propensity score matching.
The findings reveal that insider trading increases significantly within the 1 month preceding the event compared to matched peers. Additionally, the results show that... (More) - This study investigates the relationship between insider trading activities and share repurchase announcements in the Swedish market. While buybacks and insider trading have been individually studied, their interaction remains underexplored. This research fills the gap by analysing insider trading patterns before buyback announcements and examining the impact on post-announcement market returns. The sample comprises 87 buyback announcements from 42 companies listed on the Stockholm Stock Exchange between 2016 and 2022, matched with peers using propensity score matching.
The findings reveal that insider trading increases significantly within the 1 month preceding the event compared to matched peers. Additionally, the results show that insiders are the most active within the month of the event, suggesting that insiders are taking advantage of the market conditions created by the event itself. Moreover, two event studies are conducted to explore the relationship between insider trading and repurchase announcements on abnormal returns. The first event study measuring the abnormal returns within a 3-day event window of the event finds a significant positive announcement effect for event firms compared to matched peers. Furthermore, the findings conclude that the announcement effect is significantly reduced when a buyback announcement is expected. However, there is no significant short-term relationship between insider trading and abnormal returns, thus disproving the joint theory on the Swedish market. The second event study conducted over a longer 250-day window, finds a significant positive correlation between insider trading and abnormal returns, suggesting that insiders possess superior knowledge about a firm’s valuation. However, the combined effect of insider trading and buyback announcements within this window is insignificant. Further, the study finds no long-term effect on returns from repurchase announcements, suggesting the market efficiently revalues a company within the 3-day event window. The study concludes that while insider trading and buyback announcements individually convey valuable information to the market, their combined predictive power on abnormal returns is limited. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9156775
- author
- Lugnegård, Gustaf LU and Wejdelind, Philip LU
- supervisor
- organization
- course
- NEKN02 20241
- year
- 2024
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Share repurchase announcements, Buyback announcements, Insider trading, Abnormal returns, Event-study
- language
- English
- id
- 9156775
- date added to LUP
- 2024-08-12 15:57:31
- date last changed
- 2024-08-12 15:57:31
@misc{9156775,
abstract = {{This study investigates the relationship between insider trading activities and share repurchase announcements in the Swedish market. While buybacks and insider trading have been individually studied, their interaction remains underexplored. This research fills the gap by analysing insider trading patterns before buyback announcements and examining the impact on post-announcement market returns. The sample comprises 87 buyback announcements from 42 companies listed on the Stockholm Stock Exchange between 2016 and 2022, matched with peers using propensity score matching.
The findings reveal that insider trading increases significantly within the 1 month preceding the event compared to matched peers. Additionally, the results show that insiders are the most active within the month of the event, suggesting that insiders are taking advantage of the market conditions created by the event itself. Moreover, two event studies are conducted to explore the relationship between insider trading and repurchase announcements on abnormal returns. The first event study measuring the abnormal returns within a 3-day event window of the event finds a significant positive announcement effect for event firms compared to matched peers. Furthermore, the findings conclude that the announcement effect is significantly reduced when a buyback announcement is expected. However, there is no significant short-term relationship between insider trading and abnormal returns, thus disproving the joint theory on the Swedish market. The second event study conducted over a longer 250-day window, finds a significant positive correlation between insider trading and abnormal returns, suggesting that insiders possess superior knowledge about a firm’s valuation. However, the combined effect of insider trading and buyback announcements within this window is insignificant. Further, the study finds no long-term effect on returns from repurchase announcements, suggesting the market efficiently revalues a company within the 3-day event window. The study concludes that while insider trading and buyback announcements individually convey valuable information to the market, their combined predictive power on abnormal returns is limited.}},
author = {{Lugnegård, Gustaf and Wejdelind, Philip}},
language = {{eng}},
note = {{Student Paper}},
title = {{Insider Trading & their chamber of secrets}},
year = {{2024}},
}