<p>Background:</p><p>Studying insider trading is difficult due to its sensitive and delicate nature. Therefore it is hard to gauge the extent of such activities. This problem has resulted in a fierce debate whether it should be prohibited or not. Using a method where the effect on monopolistic information usage can be isolated insider trading can be monitored. Such an event is a profit warning.</p><p>Purpose:</p><p>This paper examines whether insider trading exist for companies</p><p>making a profit warning between year 2003 and 2007 on the Stockholm</p><p>Stock Exchange. Furthermore the aim with the study is to contribute</p><p>to the debate on the insider trading legislation.</p><p>Method:</p><p>The study’s purpose is achieved through an event study studying the</p><p>cumulative abnormal return as well as average daily returns during</p><p>the thirty days preceding the warning for a sample of thirty companies.</p><p>Since profit warnings should be completely random and as such</p><p>almost impossible for the market to know in advance, a significant</p><p>abnormal return can only be explained with insider trading. The abnormal returns were calculated using the Capital Asset Pricing Model</p><p>since it is the most widely used model.</p><p>Conclusion:</p><p>For the chosen time frame, when testing on a 95% significance level,</p><p>the study found a significant abnormal return during the last 10 days</p><p>of the event window but not for the entire period of thirty days. The</p><p>daily average return for the thirty companies were significant for six</p><p>of the thirty days within the event window. Two of them were included</p><p>in the last ten day period with a confirmed significant abnormal</p><p>return which might suggest that on average insider trading tend</p><p>to occur during these days. The other four was discarded due to</p><p>sample issues. Since the study was limited to a period of four years</p><p>extending the results to a period other than tested should be made</p><p>with great care since conditions may differ over time. Concerning the</p><p>current debate on the insider legislation, the findings can be used by</p><p>both sides. Either to argue for a strengthening of the law or to question its existence.</p>
| Identifer | oai:union.ndltd.org:UPSALLA/oai:DiVA.org:hj-1001 |
| Date | January 2007 |
| Creators | Lindén, Patrik, Lejdelin, Martin |
| Publisher | Jönköping University, JIBS, Business Administration, Jönköping University, JIBS, Business Administration |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, text |
Page generated in 0.0034 seconds