Does Contracts Size Matter?

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Recommended: Arguments in favour of insider trading

The Common perception about the word ‘insider trading’ is that all insiders’ transactions are illegal. This misperception arises because some trades by insiders are illegal while others are absolutely legal. In this study, we study insider trading transactions those are perfectly legal, where the information of these trades is publicly available. The insider trading issue not only attracts finance literature (see, e.g., Lorie and Niederhoffer (1968), Jaffe (1974), Seyhun (1986, 1998), Rozeff and Zaman (1988), Lin and Howe (1990), and Lakonishok and Lee (2001). but also attracts law and economics literature (see, e.g., Manna (1966), Georgakopoulos (1993), and Carlton and Fischel (1983)). After extensive study of literature on insider trading, we find the following three motivations to study reported insider trading Science After the classic paper of Fama (1970), everybody debates about the stock market efficiency. The reported insider trading transactions provide us an opportunity to measure market reaction (semi-strong efficiency) around the day of reporting of insider trades, which has scientific implications of insider trading on market efficiency. Optimal trading Strategies Investors or traders use various trading strategies to obtain excess returns, for example, the value-based strategy or the contrarian strategy. These strategies use fundamental factor to market price ratios, for example, book to market ratio (B/M) or earning to price ratio (E/P) ratio, to identify the factors that make above market returns. When stocks and companies data are freely available to money managers or traders, then it is hard to find a particular trading strategy that is profitable over others. Can the information content of ins... ... middle of paper ... ... subject to more idiosyncratic risk than any diversify investment portfolio or to survive, he needs liquidity, for example, to pay home rent. Thus, it can be expected that he sells more stock on the open market (Ofek and Yermack, 2000), even his stock is undervalued (Meulbroek, 2000). Therefore, we assume that insider sells on intangible assets’ firm are less likely to convey information to public than tangible assists’ firm. The rest of the study proceeds as follows. The next section describes about Insider trading regulation of India along with the comparison between Insider regulation on U.S and on India. Section III lays out brief discussion of previous literature and theoretical back ground to our hypothesis. Section IV deals with hypotheses formations. Section V describes about the methodology and Section VI presents the expected outcome of the study.

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