Insider Trading as a Menace: An Indian Perspective

Abstract

This research paper examines the price behavior of equity shares of companies that indulge in insider trading of their securities. Further, it also analyzes whether reporting delays and industry differences have any impact on the magnitude of abnormal returns. A sample of 1,101 insider transactions by insiders of Bombay Stock Exchange (BSE) listed companies for the period April 1, 2009-March 31, 2013 has been utilized for analysis purpose, which includes 524 buy transactions and 577 sell transactions. The impact of insider transactions on share prices is ascertained by examining the abnormal returns on the date of transaction by using the market model. The findings of the study reveal that insiders are able to earn abnormal returns during one month post the event, whereas in the long run, the profits almost disappear. Time duration of reporting trades to stock exchange and industry differences impact the direction and magnitude of stock market returns.