Insider trading
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Information is the most important factor in the stock market. The price of the stock tends to change with the information. This requires an investor to evaluate his/her investment at a certain period of time depending on the nature of information available on hand. Any information that is available in the market can affect the value of the firm. Now the problem over here is that before the information reaches the market, the information is available to the people working in the company. Within a company, there are many people who might have access to information that might be construed as privileged to their position in the company. In order to understand the theory of insider trading by inside information, we will go through four different stages (1) discussing the kind of information (2) discussing the relationship between insiders' trading and the subsequent announcement of financial and accounting results (3) discussing the methodology of insiders' trading (4) evaluating the results of the analysis.
Pratt and DeVere, Jaffe and Finnerty in their various studies have shown that an average insider can perform better than the market. However, an efficient market hypothesis doesn't support this argument. Insider trading is the trading of a security of a company by an insider, a person who knows information that is not accessible or available to the public in the market...