Insider trading in the Swedish market: - Can mimicking strategies generate abnormal returns?

Abstract: In this paper we investigate whether insiders generates abnormal returns over time and whether outsiders can make abnormal returns from mimicking the trades of insiders. We further investigate whether certain trade characteristics can help tell us something about the future returns and which insiders that are the most profitable to mimic. We find that corporate insiders generate abnormal returns through short term investments, while only long term investments see abnormal returns when looking at a subsample of buy transactions only. Our results also suggest that an information hierarchy exists where CEO, board members and large shareholders generate higher abnormal returns than other insiders. We also find that the insider himself enjoys more consistent abnormal returns than do his relatives. Furthermore, we show that outside investors can generate abnormal returns by mimicking insiders' trades on the publication date. This information is used to create an investment strategy that continually generates abnormal returns.