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Germany's New Insider Law: The Empirical Evidence after the First Year

  • Olaf Stotz

This paper investigates insider trading activities in German stocks during the first year following implementation of the new Insider Law on 1 July 2002. It can be observed that insiders act as contrarian investors. They buy stocks after prices have fallen and sell stocks after prices have risen. In general, insider trades are very profitable. A typical stock purchased by an insider yields an abnormal return of almost 3 per cent during the 25 days following the transaction. In contrast, a typical stock that has been sold by insiders achieves an abnormal return of nearly - 3 per cent over the same time period. Outsiders who copy the transactions of insiders can achieve nearly the same abnormal returns. Abnormal returns remain substantial even after transaction costs. The results suggest that prices of stocks in which insiders trade do not seem to be semi-strong efficient. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2006.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2006.00129.x
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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 7 (2006)
Issue (Month): (November)
Pages: 449-462

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Handle: RePEc:bla:germec:v:7:y:2006:i::p:449-462
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  1. Brown, Stephen J. & Weinstein, Mark I., 1985. "Derived factors in event studies," Journal of Financial Economics, Elsevier, vol. 14(3), pages 491-495, September.
  2. Gregory, Alan, et al, 1994. "UK Directors' Trading: The Impact of Dealings in Smaller Firms," Economic Journal, Royal Economic Society, vol. 104(422), pages 37-53, January.
  3. Conrad, Jennifer & Kaul, Gautam, 1993. " Long-Term Market Overreaction or Biases in Computed Returns?," Journal of Finance, American Finance Association, vol. 48(1), pages 39-63, March.
  4. Michael S. Rozeff & Mir A. Zaman, 1998. "Overreaction and Insider Trading: Evidence from Growth and Value Portfolios," Journal of Finance, American Finance Association, vol. 53(2), pages 701-716, 04.
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