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Observational study reveals persistent abnormal returns in corporate insider trades, suggesting stiffer legal penalties fail to deter profitable transactions.
Recent Canadian data on large insider transactions showed that abnormal gains accrued to directors and bank directors during a stock market upturn. During a stock market downturn, beneficial owners, senior officers, and bank directors were compensated by more than the risk‐adjusted rates of return from sales of stocks of their own companies. Since Baesel and Stein's early study, abnormal gains persisted in spite of the introduction of stiffer penalties on insider trading.
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Lee et al. (1989) studied this question.
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