Profitability of Informed Insiders and Market Efficiency

This study expands the academic field devoted to revealing insiders whose transactions serve as a strong predictor of future market returns. The study combines the most successful approaches of distinguishing the most relevant transactions and measuring their predictive power in order to analyse whether it varies under different levels of market liquidity. It is demonstrated that results achieved by previous researchers turn out to be insignificant within particular subsamples. As a result, this study provides an important contribution by successfully challenging the existing results under certain circumstances and therefore grants an opportunity to reveal informed insiders more precisely by excluding part of irrelevant observations. At the same time, the strategy of following the distinguished transactions did not result in significant abnormal results. Therefore, no evidence against the efficient market hypothesis was discovered.