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The IUP Journal of Applied Economics
Insider Trading as a Menace: An Indian Perspective
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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.

 
 
 

Insider trading relates to the investment behavior of corporate employees in the securities of their own companies. When the stock prices move up or plunge in a stock market without any apparent reason, investors and analysts generally believe that shares are reacting to non-public information. To promote safe and fair trading in the securities market, SEBI discouraged this type of trading. The present study tries to analyze the impact of insider trading on stock market returns and how the stock market reactions differ with respect to insider purchases and insider sales. This study also examines whether delayed reporting of insider trades to respective stock exchanges and industrial differences have any impact on the magnitude of insiderís abnormal returns.

 
 
 

Applied Economics Jouranl, Examines the price behavior,Reporting delays and industry differences, Insiders of Bombay Stock Exchange (BSE), Magnitude of stock market returns.