Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
Insider trading in capital market
Insider trading in capital market
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: Insider trading in capital market
An active investor invests his all resources to determine the fair value of a stock. However, most of the times, he is unable to acquire a piece of information that is not available in the public domain and that information may alter the probability distribution of his investment decision (James Lorie, 1980). In this phenomenon, an active investor may infer the non-public information by considering corporate insiders’ action in their own stock. Many previous studies (e.g., Jaffe, 1974; Finnerty, 1976a, b; Seyhun, 1986, 1988a, b; Rozeff and Zaman, 1988; Lin and Howe, 1990) document that corporate insiders pursue special information and on that special information, not only insiders are able to earn abnormal profits through trading stocks of own firms but also outsiders also able to earn abnormally by merely mimicking their actions. In financial economies literature, these findings have been considered as a violation of market efficiency. The main objective of this study is to determine market reactions around the day of insider trading and the day of announcements on Indian stock market. We are curious to perform our analysis on Indian data because a major chunk of studies on insider trading are concentrated on the U.S data. Therefore, the analysis of India insider trading data provides an independent outcome to compare with previous studies’ results. Besides, there are enough differences between the US and India market, which indicate that the results of these studies may not be robust in Asia or emerging markets. First difference, the ownership structure of emerging markets’ firms is more concentrated than developed markets’ firms (La Porta et al, 1999). For example, La Porta et al (1998) find that in the Indian firm, the top th... ... middle of paper ... ... to price ratio and size effects of approximately 9% per annum in market model error term. Moreover, Finnerty (1976) finds that insiders most likely to buy their own stock when a firm is a small size and having low BM ratio compared to other firms whose stocks the average insiders are selling. If insiders’ buy tend to be concentrated in small size and low BM firms, the abnormal returns of insider trading information that are calculated by the market model may be significantly differ from zero in the absence of special information. In this paper, we calculate adjusted abnormal returns of insider trading that take into account the size and BM ratio effects. In this methodology, we argue that when we match the firm of insider trading with similar size and BM ratio portfolio, and then adjusted abnormal returns will be originated because of the special information.
Jeffery Archer is accused of insider trading with the shares of Anglia TV. Jeffery bought shares for the “inside information” of the companies dealing account, the day after the last board meeting but before the bid was announced. He should have known that even if he found out insider information from his wife the law makes it clear that he cannot deal or trade with that stock. It would be considered unfair to the rest of the shareholders, because other shareholders would not have the same information like Jeffery. As we know the buying and selling of shares must be based on public information
The seriousness of insider trading was not brought to light until some time after the stock market crash of 1929. This specific event can be summed up as a day where many investors traded around 16 million shares
I chose to analyze the third largest retail drugstore chain in the United States, Rite Aid Corporation. I chose to analyze Rite Aid Corp. because our family owns approximately 1200 shares and we have taken quite a loss on our investment. We are in the process of deciding whether or not we should sell our stock. Additionally, my Mother has been a pharmacist at Rite Aid Corp for 11 years and she often pays close attention to the financial stability of the company. We both feel that when you are employed by a corporation, that the corporation should be financially stable. A financially secure employer is one who generally offers better compensation and advancement to its employees.
Target, the nation's #2 discount chain, now operates more than 1,500 Target and Super Target stores in 47 states, as well as an online business called Target.com. Target and its larger grocery-carrying stores, Super Target, have carved out a niche by offering more upscale, fashion-forward merchandise than rivals Wal-Mart and Kmart. After years of struggling to turn around its Marshall Fields and Mervyns departments stores divisions, the discounter sold them both in 2004. Target also owns apparel supplier The Associated Merchandising Corp. and issues Target Visa and its proprietary Target Card (www.Answers.com/topic/target-corporation).
I recommend a strong buy on Cisco’s stock with a target price of $32.50, a 50% upside from its current price. Cisco has a solid competitive advantage, because there are not many strong competitors in the market. The other firms show a higher P/E ratio than Cisco because they have a lower market share. The company shows a constant growth. Cisco markets its products globally with the highest market shares than its competitors. The main risks for Cisco are worsening of economic conditions or exchange rates. The company has a good growth in sales, which will lead higher profits. The company also gives out an annualized dividend to its shareholders every year.
Two individual employees wanted to complete their assignment for their company. But, did their strategy go about accuracy? Karel Svoboda works for Rogue Bank. Svoboda is a credit officer who needed Alena Robles, independent accountant, assists to evaluate and approved his employer’s extensions of credit to clients. In order to complete the task, Svoboda needed to access the nonpublic information about the clients’ personal information related to the company such as their profits and performances. Instead of appropriately following the company policy, Svoboda and Robles created a plan to utilize this data to exchange securities. According to their plan, Robles exchanged the securities of more than twenty unique organizations and benefitted by
There are many instances of insider trading that have taken place in the U.S. stock exchange. The Federal Reserve and The Federal Government have clearly stated that insider trading undermines the law and is illegal, but individuals insider trade anyway.
The Efficient Market Hypothesis suggests that market prices fully reflect all information available to the public. However, practitioners and regulator are uncertain as to the validity of this hypothesis. The questions that Bloomfield raises are: If market prices truly reflect information, why do investors waste efforts by trying to identify mispriced stock prices? Why do managers try to hide bad news in footnotes? And why do regulators try to prevent them from doing this? Robert J. Bloomfield presents an alternative to EMH called the Incomplete Revelation Hypotheses. IRH suggests that statistical data which is more costly drives fewer trading interest. Therefore information that is more costly to extract from publicly available information is not fully reflected in the market prices.
This case study is not about Ms. Stewart direct participation with illegal insider trading as the media had steered the public to believe. To begin, Ms. Stewart received a phone call from Ann Armstrong, her assistant, stating that Peter Bacanovic, her stockbroker, “thinks ImClone is going to start trading down.” (Arnold, Beauchamp, Bowie, 2013, p. 390) Although Ms. Stewart was not able to get a hold of Peter, she talked to his assistance, Douglas Faneuil,
First to be discussed is a concrete definition of “insider trading” as it is discussed in this essay. According to the “European Communities 1989 Insider Dealing Directive: insider trading is the dealing on the basis of materials unpublished, price-sensitive information possessed as a result of one’s employment.(Insider Trading)”
Second, the efficient market hypothesis cannot explain market anomalies. These market anomalies include the pricing/earnings effect, the size and January effect, the monthly effect, holiday effect and the weekend effect. These anomalies indicate either market ineffici...
Before playing the stock market game, I honestly had no idea about how the stock market work. I, however, have learned so much about the process of the stock market. It was an advantage to learn how to buy and sell stocks without losing any thing, that will indeed enable me to invest in the real stock market without any concern. I learned that there is no certainty about wining or losing; however, there are many factors that we should consider before buying or selling stocks. One of theses factors is follow the daily news about the firm that you are willing to buy its stocks. Following the history of the firm transactions is also a significant factor that must be considered. The level of stability
According to the previous literature, ownership of investment companies by major shareholders of the investee company can have a negative influence on share price. Another study states that non-operating profits that are
... the public and private sector. It uses both the weak form and semi strong from to make decisions. When an investor is given both public and private information the investor would not be able to profit about the average investor even if he was provided with new information at any given time. These investors are given name such as insiders, exchange specialist, analyst and money mangers. Insiders are senior managers that have access to inside information of that company. The security exchange commission prohibits that allow of inside information use to achieve abnormal returns on investments. An exchange specialist can achieve above average returns with specific order information on a specific equity. Analysts can analyze whether an analyst opinion can help an investor achieve above average returns. Institutional money mangers work handle mutual funds and pensions.
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.