The informational effects of large insider stock purchases

Outlines previous research on the effects of insider trading on share prices and reactions to the tightening up of US laws against illegal trading. Calculates returns for a sample of large managerial purchases made after the new legislation (1993‐1995) and announced in the Wall Street Journal to test for the presence of asymmetric information, agency conflicts and undervaluation; using firm size, market‐to‐book ratio, Q ratio and price‐earnings ratio as proxies. Finds that share prices react positively to large managerial purchases, especially if the firm is small, undervalued and/or experiencing conflicts between managers and shareholders; and that this effect is not reversed within a year.