insider trading

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insider trading

n. the use of confidential information about a business gained through employment in a company or a stock brokerage, to buy and/or sell stocks and bonds based on the private knowledge that the value will go up or down. The victims are the unsuspecting investing public. It is a crime under the Securities and Exchange Act, for which Ivan Boesky and others have been sentenced to prison for relatively short terms and only small fines, considering the percentage impact on their accumulated wealth. Joseph P. Kennedy, father of President John F. Kennedy, made much of his fortune in the 1920s by insider trading before it was a crime. When the Securities and Exchange Commission was created in the early days of the New Deal (1933), President Franklin D. Roosevelt appointed Kennedy to the Commission on the theory that it took an insider to catch insiders. (See: insider)

insider trading

noun criminality, disclosure of connidential information, illegal disclosure, illegal use, illegal use of secret information, illegality, impropriety, infraction, infringement, misappropriate nonpublic information and material, prohibited use of confidential information, SEC violation, use of restricted information, violation of law
Associated concepts: Rule 10b-5, Securities Exchange Act
References in periodicals archive ?
Insider trades and private information: the special case of delayed-disclosure trades, Review of Financial Studies 20(5): 1833-1864.
Are insider trades informative?, Review of Financial Studies 14(1): 79-111.
Three groups in prior price change: [P.sub.0,i] > [P.sub.-60.i], [P.sub.0,i] = [P.sub.-60,i], and [P.sub.0,i] < [P.sub.-60.i], where [P.sub.0.i] is the price of the insider trade and [P.sub.-60,i] is the price of the 60th trade prior to the insider trade.
We calculated the volatilities using the 60 trades prior the insider trade and the 60 trades before the matched trade.
Second, recall from Exhibit 1 that the CARs "reverse" near the time of insider trade execution.
Consistent with prior results for post-announcement trades, both buy and sell portfolios exhibit a price reversal following insider trade execution.
Jenter (2005) attempts to discriminate between the two possible explanations of abnormal profits from insider trades. He finds no evidence of insider trading profits after adjusting for firm size and BE/ME (contrarian trading indicators).
An added difficulty in extracting useful information from executives' insider trades is the increased prevalence of equity-based compensation for top managers: most top executives these days receive significant grants of stock options and restricted stock, and hold considerable amounts of both vested and unvested equity in their employer.
Given that the number of insider trades is quite small for certain quarters, the aggregate one-year pre- and post- event comparisons are undoubtedly more reliable.
Numerous authors have studied legal insider trades to determine whether insiders earn superior returns by timing their purchases and sales (Pettit and Venkatesh, 1995; Eckbo and Smith, 1998; Lakonishok and Lee, 2001; Jeng, Metrick, and Zeckhauser, 2003).
("[W]hen an insider trades while in possession of material non-public information, a strong inference arises that such information was used by the insider in trading.
First, because firms without insider trades are not excluded, we obtain a better estimate of insider-trading propensities and their association with stock returns.